Learning Outcome 2 - 6 standard questions / Understand the macro-economic environment and its impact on asset classes Flashcards
Which is an indicator of consumer spending and retail sales; M0 or M4?
M0
Which acts as an indicator of the economy; M0 or M4?
M4
What does growth in M0 indicate?
Consumers are happily spending money
What does contraction in M0 suggest?
Consumers are behaving more cautiously and not spending as much
What does a contraction in M0 suggest?
Consumers are behaving more cautiously and not spending as much
Rapid growth in money circulating in the economy is often interpreted as a build-up of what?
Inflationary pressures
An increased demand for loans is reflected in a faster growth of M0 or M4?
M4
What will happen to the value of money if the quantity of money supply is increased when consumers aren’t spending as much?
It’s value will fall
Consumer demand over the supply of goods tends to force up the general
level of prices, causing inflation; true of false?
True
The balance of payments measures receipts and payments. What does a receipt represent?
Payments into the UK
The balance of payments measures receipts and payments. What does a payment represent?
Payments out of the UK
The current account used for the countries balance of payments is split into which 4 categories?
Trades in goods
Trades in services
Investment income
Transfer payments
What does a deficit in the current account mean?
More goods and services have been imported into the UK than sold abroad (basically the UK spent too much, similar to being in an overdraft on your current account)
What creates a trade gap?
When the UK has imported more goods than it has exported
What is the difference between the capital and current account for the country in terms of the types of transactions it contains?
Current account deals with imports and exports of trades and services
Capital account deals with foreign investments in the UK and abroad
If overseas investors invest more money in the country than UK investors invest overseas, what would happen to the UK capital account?
It would be in a surplus
Which measure of inflation is used against Government index-linked gilts?
RPI
What has been the lead measure of inflation used by the ONS since 2017?
CPIH
Disinflation is unlikely to occur during recession. True or false?
False
An increase in inflation has been predicted, what may happen to the price of conventional gilts as a result?
Fall
What does gross domestic product (GDP) measure?
The value of all goods and services produced domestically during the calendar year
When the level of GDP falls compared with the previous quarter, the economy is said to be…
Contracting
After two successive quarters of declining GDP, the economy is said to be in…
Recession
When GDP rises compared with the previous quarter, the economy is….
Expanding
If the growth in M0 is consistent but M4 shows a sharp decline, what does this mean about lending activity?
It has been reduced
In a period when interest rates have fallen substantially, the nominal value of a conventional fixed-interest security at maturity will increase, decrease, or remain constant?
Remain constant
Which type of industries are at a disadvantage due to globalisation?
Low-skilled, labour-intensive industries in the developed world
What are the 4 main phases of a business cycle?
Recovery/acceleration, boom, slowdown and recession
What happens to the yield and value of fixed-interest securities if interest rates rise?
Value = decrease
Yield = increase
A Japanese company is looking to establish a new factory in the UK. Assessing this decision in isolation, what would be the likely change in the exchange rate between UK Sterling and Japanese Yen?
Sterling would appreciate and Yen would weaken
What does is mean for inflation when a rapid growth in M4 is witnessed?
Inflationary pressures are building up
If the M0 measure of money growth is consistent, but the M4 measure shows a sharp decline, what does this suggest about lending activities?
They have reduced
What can a predicted increase in inflation mean for the price of conventional gilts?
They can fall
Building inflationary pressures can be seen in the rapid growth of M0 or M4?
M4
What is the public sector net cash
requirement (PSNCR)?
The difference between the governments expenditure and revenue
When the economy is in recession, what is likely to happen to the PSNCR?
Grow
When the economy is expanding, what is likely to happen to the PSNCR?
Become a deficit
