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Investments (securities) > Unit 11 > Flashcards

Unit 11 Flashcards

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SIE Exam flashcards
1
Q

What is economics?

A

the study of supply and demand

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2
Q

What is Gross domestic product (GDP)?

A

A nation’s annual economic output—all the goods and services produced within the nation

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3
Q

What does GDP include?

A

all activity that occurs within the confines of the nation’s boundaries, even if the activity is generated by a foreign entity

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4
Q

When people want to buy an item that is in short supply, the item’s price _________

A

rises

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5
Q

In GDP, what does a negative and/or positive figure indicate.

A

A positive figure indicates that the economy is growing. A negative figure indicates that the economy is contracting.

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6
Q

Explain a Consumer Price Index.

A

The most prominent measure of general price changes

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7
Q

What does the United States GDP include?

A

personal consumption, government spending, gross private investment, foreign investment, and net exports

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8
Q

What does the Consumer Price Index measure?

A

Measures the rate of increase or decrease in a broad range of consumer prices, such as food, housing, transportation, medical care, clothing, electricity, entertainment, and services.

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9
Q

Comparing the economic output (GDP) of one period with that of another, how is this done?

A

analysts use the CPI to account for changes in the costs of goods to adjust for inflation (or deflation). This way the GDP figures reflect actual growth

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10
Q

What is real GDP?

A

It is a constant dollar (inflation adjusted) measurement. The term constant dollar measurement is sometime used for CPI.

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11
Q

How often is CPI measure?

A

Each month

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12
Q

What is deflation?

A

Is a general decline in prices

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13
Q

When does a deflation occur?

A

Occurs during severe recessions when unemployment is on the rise

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14
Q

What is hyperinflation?

A

the pace of inflation is extremely high and accelerating. This severely erodes the purchasing power of a currency.

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15
Q

What is stagflation?

A

is the term used to describe the unusual combination of inflation (a rise in prices) and high unemployment

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16
Q

What is stagnation?

A

refers to prolonged periods of slow or little economic growth, accompanied by high unemployment.

17
Q

In __________, investors often move cash away from the nation and the currency experiencing it, worsening the devaluation of the currency

A

hyperinflation

18
Q

When does stagflation?

A

This generally occurs when the economy isn’t growing and there is a lack of consumer demand and business activity, but prices for goods are still rising.

19
Q

Describe inflation

A

is a general increase in prices

20
Q 
An economic environment with little or no economic growth, but where inflation is present, is best described as 
A. deflation. 
B. depression. 
C. Stagflation. 
D. Stagnation.
A

C

21
Q 
Which of the following would be a leading economic indicator? 
A. S&P 500 Index 
B. Industrial production 
C. Duration of unemployment 
D. Gross domestic product (GDP)
A

A

22
Q 
A measure of the change in economic activity that occurs over a given time frame within the boundaries of a nation is that nation's 
A. gross domestic product. 
B. gross national product. 
C. Consumer Price Index. 
D. industrial production.
A

A

23
Q

What is coincident economic indicators ?

A

change direction along with the economy as a -whole

24
Q

When are coincident economic indicators published?

A

after the time period has passed, they are good confirmation tools of the leading indicators

25
Q

Explain the effect of mild inflation and high inflation.

A

Mild inflation can encourage economic growth because gradually increasing prices tend to stimulate business investments. High inflation reduces a dollar’s buying power, which hurts the economy.

26
Q

What are some coincident economic indicators?

A

■ Number of hours worked (as a proxy for personal income)
■ Employment levels (as measured by the rate of unemployment)
■ Nonagricultural employment
■ Personal income
■ Industrial production
■ Manufacturing and trade sales
■ GDP

27
Q

What are some lagging economic indicators?

A

■ Corporate profits
■ Average duration of unemployment
■ Labor cost per unit of output (manufacturing)
■ Ratio of inventories to sales
■ Commercial and industrial loans outstanding
■ Ratio of consumer installment credit to personal income

28
Q

What is lagging economic indicators?

A

Are those indicators that change after the economy has begun a new trend but serve as confirmation of the new trend

29
Q

What is the purpose of lagging economic indicators?

A

Help analysts differentiate long-term trends from short-term reversals that occur in any trend

30
Q

What is the Gross National Product?

A

GNP is very similar to GDP but is based not on the activity that occurs within the country but on the activity of the citizens and entities of the nation, wherever it may occur.

31
Q

What is the major difference between GDP and GNP?

A

GNP sees significantly less use (outside of economists) than GDP.

32
Q

How often is the GNP published?

A

On a quarterly basis

33
Q

Who publishes the GNP in the United States of America?

A

Commerce Department

34
Q

Explain what the change in direction means in leading economic indictors.

A

The change of direction may lead the economy by a very long time frame (months) to very short (weeks), but they have proven to be reliable.

35
Q

If the Dearborn Motor Corporation, based in Michigan, builds a new auto plant in Germany, that would add to _______

A

GNP (the company is a U.S. company)

36
Q

What is leading economic indicators?

A

Those indicators that tend to change direction ahead of the overall economy.

37
Q

Foreign Motor Corporation, based in Japan, builds a new auto assembly line in Texas. This economic activity would add to ____(GDP/GNP) 1___________, but it would not add to ___(GDP/GNP) 2_____.

A
  1. GDP (it was built in the United States)

2. GNP because the company is not a U.S. entity

38
Q

What are some leading economic indicators?

A

■ Money supply (M2)
■ Building permits (housing starts)
■ Average weekly initial claims for state unemployment compensation
■ Average work week in manufacturing
■ New orders for consumer goods
■ Machine tool orders
■ Changes in inventories of durable goods
■ Changes in sensitive materials prices
■ Stock prices
■ Changes in business and consumer borrowing

Investments (securities) (15 decks)

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