Midterm Study Flashcards
What are business cycles?
Fluctuations in economic activity over time, including expansions and recessions.
Who determines the start and end of recessions?
Institutions like the National Bureau of Economic Research (NBER).
Define a recession according to NBER.
A significant decline in economic activity across the economy lasting more than a few months.
What behavior does the housing sector exhibit during economic cycles?
Rising home prices and construction in expansions and declining prices and reduced activity in recessions.
What does the Neo-Classical School of Economics emphasize?
Rational decision-making, market equilibrium, and minimal government intervention.
What is the focus of the Austrian School of Economics?
Individual decision-making, entrepreneurship, and the role of credit expansion in business cycles.
What is the key argument of the Monetarist School of Economics?
Controlling money supply is key to managing inflation and economic stability.
What does the Minsky Instability Hypothesis suggest?
Financial stability leads to excessive risk-taking, resulting in financial crises.
Define ‘Employed’.
Individuals currently working for pay.
What is the ‘Labor Force’?
The sum of employed and unemployed persons.
Define ‘Unemployed’.
Individuals without a job who are actively seeking work.
How is the Unemployment (UE) Rate calculated?
(Unemployed / Labor Force) × 100%.
What is ‘Frictional Unemployment’?
Short-term joblessness due to normal job transitions.
What does the Labor Force Participation Rate measure?
(Labor Force / Working-Age Population) × 100%.
Define ‘Underemployed’.
Individuals working part-time or below their skill level.
What are ‘Discouraged Workers’?
Unemployed individuals who have stopped job searching.
Define ‘Voluntarily Unemployed’.
Individuals who choose not to work.
What is ‘Hyperinflation’?
Extremely high inflation, usually over 50% per month.
Define ‘Deflation’.
A general decrease in price levels.
What is ‘Disinflation’?
A slowdown in the rate of inflation.
What causes ‘Cost-Push Inflation’?
Rising costs of production cause higher prices.
What is ‘Demand-Pull Inflation’?
Excess demand in the economy drives up prices.
What is data visualization?
The graphical representation of data for better understanding.
What type of data is represented by numbers?
Numerical Data.
Define ‘Categorical Data’.
Data sorted into categories (e.g., colors, brands).
What is ‘Continuous Data’?
Data that can take any value within a range (e.g., weight, height).
Define ‘Discrete Data’.
Data that has distinct, separate values (e.g., number of students).
What is ‘Nominal Data’?
Categorical data without an inherent order (e.g., gender, colors).
What does ‘Ordinal Data’ refer to?
Categorical data with a meaningful order (e.g., survey ratings).
What is ‘Cross-Sectional Data’?
List of the observations of a specific variable from multiple observational units at a given point in time ie companies, groups, trading markers, regions. Like January inflation rates in the EU for a given year
Define ‘Time Series Data’.
Data collected over time at regular intervals.
What is ‘Structured Data’?
Data organized in a defined format (e.g., databases).
Define ‘Unstructured Data’.
Data without a predefined structure (e.g., social media posts).
What are ‘Frequency Distributions’?
Tables or charts showing data occurrences.
What is a ‘Confusion Matrix’?
A table used to evaluate classification models. A confusion matrix is a table that compares predicted values to actual values to evaluate a machine learning model’s performance
What does a ‘Histogram’ display?
Frequency distribution of continuous data. Bar chart
What is the purpose of a ‘Bar Chart’?
Used for comparing categories. A bar chart distribution is used to visually represent the frequency or count of data points within different categories of a categorical variable
What does a ‘Scatter Plot’ show?
Shows relationships between two numerical variables.
What is a ‘Scatter Plot Matrix’?
Multiple scatter plots in one visualization. A scatterplot matrix is a grid of scatterplots that shows the relationships between multiple variables.
What are ‘Tree Maps’ used for?
Hierarchical data visualization using nested rectangles. Like the stock squares where there’s sizes
Define ‘Heat Maps’.
Color-coded data representations.
What is a ‘Word Cloud’?
Shows word frequency in text data.
What do ‘Line Charts’ track?
Data trends over time.
What is a ‘Bubble Line Chart’?
A bubble chart is a variation of a scatter chart in which the data points are replaced with bubbles, and an additional dimension of the data is represented in the size of the bubbles. Just like a scatter chart, a bubble chart does not use a category axis — both horizontal and vertical axes are value axes. In addition to the x values and y values that are plotted in a scatter chart, a bubble chart plots x values, y values, and z (size) values.
What is the purpose of Descriptive Statistics?
Summarizes and describes data characteristics.
Define ‘Population’ in statistics.
The entire group of interest.
What are ‘Samples’?
A subset of the population used for analysis.
What is the ‘Arithmetic Mean’?
The average of a data set.
Define ‘Geometric Mean’.
The nth root of the product of n numbers.
What is a ‘Weighted Mean’?
A mean where values are given different importance.
Define ‘Harmonic Mean’.
The reciprocal of the average of reciprocals.
What is the ‘Median’?
The middle value when data is sorted.
What does ‘Mode’ refer to?
The most frequently occurring value.
What is ‘Unimodal’?
One mode.
What is ‘Bimodal’?
Two modes.
Define ‘Trimodal’.
Three modes.
What are ‘Quartiles’?
Data divided into four equal parts.
What are ‘Quintiles’?
Data divided into five equal parts.
What are ‘Deciles’?
Data divided into ten equal parts.
What are ‘Percentiles’?
Data divided into 100 equal parts.
What is ‘Range’ in statistics?
Difference between the highest and lowest value.
Define ‘Mean Absolute Deviation’.
Average distance from the mean.
What is ‘Variance’?
Average squared deviation from the mean.
What does ‘Standard Deviation’ measure?
Spread of data.
What is the ‘Coefficient of Variation’?
(Standard Deviation / Mean) × 100%.
What does ‘Skewness’ measure?
Data symmetry.
What does ‘Kurtosis’ measure?
The ‘tailedness’ of a distribution.
Define ‘Leptokurtic’.
Tall, narrow peak.
What does ‘Platykurtic’ refer to?
Flat peak.
What is ‘Mesokurtic’?
Normal distribution shape.
What does ‘Correlation’ measure?
Strength of linear relationships.
What is ‘Covariance’?
Measures how two variables change together.
Define ‘Exhaustive Events’.
Events covering all possibilities.
What are ‘Mutually Exclusive Events’?
Events that cannot happen simultaneously.
What is ‘Empirical Probability’?
Based on observed data.
Define ‘A Priori Probability’.
Based on logical reasoning.
What is ‘Subjective Probability’?
An expert in a field makes a postulation based on his experience
What does ‘Conditional Probability’ refer to?
Probability of A given B has occurred. It is based on calculations rather than assumptions
What is ‘Unconditional Probability’?
Probability of an event independent of others.
Define ‘Expected Value’.
Weighted average of all possible outcomes.
What are ‘Permutations’?
Ordered arrangements of items.
Define ‘Combinations’.
Unordered selections of items.
What is a ‘Random Variable’?
Variable representing outcomes of a random process.
What is a ‘Discrete Variable’?
Takes specific values (e.g., 1, 2, 3).
Define ‘Continuous Random Variable’.
Takes any value in a range.
What does a ‘Probability Function’ do?
Assigns probability to each outcome.
What is a ‘Probability Density Function (PDF)’?
Describes likelihood of continuous variables.
What is a ‘Cumulative Distribution Function (CDF)’?
Gives probability of a variable ≤ a value.
Define ‘Discrete Uniform Distribution’.
All outcomes equally likely.
What does the ‘Binomial Distribution’ represent?
Number of successes in fixed trials.
What are the formulas for Binomial Distribution?
- Mean = np
- Variance = np(1-p)
- Standard Deviation = sqrt(np(1-p))
What is a ‘Normal Distribution’?
Bell-shaped curve.
Define ‘Log-Normal Distribution’.
Log-transformed normal data. Models stock returns. Always positive. Long right tail. Not symmetrical but has skew
What does the ‘Exponential Distribution’ model?
Models time between events.
What is the definition of a model according to the Federal Reserve and OCC?
A quantitative method used for decision-making.
What are the stages of the Model Lifecycle?
- Development
- Validation
- Implementation
- Monitoring
What is the trade-off between granularity and flexibility in modeling?
Trade-off between model detail and adaptability.
List some Best Practices (BPs) in modeling.
- Clear assumptions
- Consistent formatting
- Error handling
- Version control
What are use cases for VBA in financial modeling?
Automating financial models, data processing, and analysis in Excel.
