Unit 14- Economics & Analysis Flashcards
Definition of a depression
severe downturn lasting six quarters with unemployment 15% or more
What is the sequence of the 4 business cycles?
Expansion, Peak, Contraction, Trough
How does CPI account for inflation?
through constant dollar adjustment
Stagnation
prolonged periods of slow or little economic growth, usually accompanied by high unemployment
Stagflation
term used to describe the unusual combination of inflation and high unemployment
Leading Indicators to predict economic improvement
money supply (M2), building permits, stock prices, initial claims for state unemployment compensation, new orders for goods, machine tool orders, changes in sensitive material prices
Coincident Indicators (confirm where economy is)
employment levels, number of hours worked, personal income, industrial production, GDP, manufacturing and trade sales
Lagging Indicators (change after the economy has begun a new trend)
corporate profits, avg duration unemployment, labor costs, ratio of inventories to sales, commercial loans outstanding,
Working Permits (LE/C/LA)
LE
New Orders for consumer goods (LE/C/LA)
LE
Machine Tool Orders (LE/C/LA)
LE
Changes in inventory of durable goods (LE/C/LA)
LE
Changes in sensitive materials prices (LE/C/LA)
LE
Stock Prices (LE/C/LA)
LE
Changes in business and consumer borrowing (LE/C/LA)
LE
of Hours Worked (LE/C/LA)
C
Employment Levels (LE/C/LA)
C
Nonagricultural employment (LE/C/LA)
C
Personal Income(LE/C/LA)
C
Industrial Production (LE/C/LA)
C
GDP (LE/C/LA)
C
Corporate Profits (LE/C/LA)
LA
Avg Duration of Unemployment (LE/C/LA)
LA
Ratio of Inventories (LE/C/LA)
LA
Commercial Loans Outstanding (LE/C/LA)
LA
Ratio of Inventories to Sales (LE/C/LA)
LA
Do Keynesian economists believe in gov intervention or market forces takes over?
Gov Intervention- tax levels and gov spending
Friedman Theory based on MS
money supply
Supply Side Economics
reduce tax rates as well as gov spending
Discount Rate
The rate at which the Fed charges its members for short term loans
m1
currency in circulation and demand deposits
m2
savings accounts, nonnegotiable CDs, money market funds, overnight repos, time deposits less than $100,000
m3
including time deposits more than M3 and deposits more than $100,000
Loosen the money supply
buys securities from banks, lower discount rate, lower reserve requirements
Tighten money supply
sells securities to banks, raise the discount rate, and raise reserve requirements
Disintermediation
flow of money from traditional low yielding savings accounts to higher yielding investments in the marketplace
Technical Analysis
based on historic prices and trading volume patterns
Fundamental Analysis
based on broad-based economic trends
Saucer stock price movement
reversal of a downtrend
Inverted saucer stock price movement
reversal of an uptrend
When is the market OVERBOUGHT?
when index is rising, but number of declining stocks is rising relative to the number of advancing stocks
When is a market OVERSOLD?
when an index is decling, but number of advancing stocks is rising relative to number of declining stocks
Primary Trend
one year or more
Secondary Trend
3-12 weeks
Short-Term Fluctuation
hours or days
Odd-Lot Trading
when small investors buy and sell at the incorrect times
When the market is consolidating, the trendline is moving which way?
sideways
Which index is the narrowest measure of the market?
Dow Jones Industrial Average
Which index is the broadest measure of the market?
Wilshire 5000
What are examples of cyclical industries?
automobiles / steel
Business Development Company (BDC)
like closed-end investment companies that fund small start-ups but not venture capital funds
**Allow nonaccredited investors to invest unlike VCs
Quick Assets Equation
Current Assets - Inventories
Are Low Debt Equity Ratios or High Debt Equity Ratios considered more conservative?
Low Debt-Equity Ratios
Is the more stringent measurement of liquidity current ratio or the acid-test ratio?
Acid Test
Which are more volatile: short term rates or long term rates?
Short Term Rates
Which are more reactive to interest rates: long term bonds or short term bonds?
Long Term Bonds
Which is the most volatile interest rate?
Fed Funds Rate
Tighten Credit
reduction in the availability of loans- to curb inflation
What is a defensive stock?
One that is least affected by business cycles
