Unit 14: Economics & Analysis Flashcards
Refers to governmental budget decisions, which can include increases and decreases in:
• Federal Spending
• Money Raised Through Taxes
• Federal Budget Deficits or Surpluses
Fiscal Policy
The flow of money between the United States and other countries
Balance of Payments
Industries least affected by normal business cycles; during recessions and bear markets, stocks in defensive industries generally decline less than stocks in other industries; Investments in defensive industries tend to involve less risk and consequently lower investment returns; nondurable consumer goods: food, pharmaceuticals and tobacco
Defensive Industries
The number of issues closing up or down on a specific day
Market breadth
Reflect where the economy is going; spot checks of business activity that reliably predict trends in the economy.
Leading Indicators
The largest and most liquid component of the money supply is M_
M1
Believe the quantity of money, the money supply, is the major determinant of price levels. A well-controlled, moderately increasing supply leads to price stability.
Monetarist Theory
The economy is ________ when characterized by:
• Increased consumer demand for goods and services;
• Increases in industrial production;
• Rising stock prices;
• Rising property values;
• Increasing Gross Domestic Product (GDP)
Expansions
The analysis that attempts to predict the direction of prices on the basis of historic price and trading volume patterns when laid out graphically on charts.
Technical analysis
More money flowing out of the country than in
Deficit
time deposits of more than $100K and repurchase agreements with terms longer than one day are M_
M3
The general increase in prices; a barometer (indicator) in the general direction of price levels.
Inflation
Severe contractions; lasting six quarters (18 months) or more with unemployment rates greater than 15%
Depression
The FRB affects the money supply through 3 policy tools:
1) Open Market Operations - The Fed buys and sells U.S. Government securities in the open market to expand and contract the money supply.
2) Changes in the discount rate (on loans to member banks)
3) Changes in reserve requirements
The difference between current assets and current liabilities
Working Capital
Periods of economic expansion followed by periods of economic contraction
Business Cycle
Time deposits: savings accts, nonnegotiable CDs, money market funds, and overnight repurchase agreements are M_
M2
Rare; is the general decline in prices; usually occurs during severe recessions when unemployment is on the rise.
Deflation
The interest rate banks charge each other for loans. The most volatile rate in the economy
Federal Funds Rate
Holds that the government should allow market forces to determine prices of all goods.
Supply-Side Economics
Who determines monetary policy and takes action to implement its policies
Federal Reserve Board
The economy is in a _________ when the business cycle tends to be characterized by:
• Rising numbers of bankruptcies and bond defaults;
• Higher consumer debt;
• Falling stock prices;
• Rising inventories
• Decreasing Gross Domestic Product (GDP)
Downturn
Mild, short-term contractions; when decline in real output of goods and services lasts for six months or more.
Recession
Those factors that change after the economy has begun a new trend, but serve as confirmation of the new trend. Help analysts differentiate long term trends from short-term reversals. (example: the numbers corporations report showing profits or losses generally come at least one quarter after the actual occurrence. These numbers tell us where the company stood at the time.
Lagging Indicator
Prolonged periods of slow or little economic growth; accompanied by high unemployment
Stagnation
Unusual combination of inflation and high unemployment
Stagflation
All money commercial banks deposit at Federal Reserve Banks, including money exceeding the reserve requirement
Federal Funds
Industries that are growing faster than the economy as a whole; growth stocks usually pay little or no dividends.
Growth Industries
The flow of deposits out of banks and savings and loans into alternative, higher-paying investments. It occurs when money is tight and interest rates are high because these alternative investments may then offer higher yields than S&Ls and banks.
Disintermediation
The study of supply and demand
Economics
More money flowing into the country than out
Surplus
The analysts that concentrate on broad-based economic trends; current business conditions within an industry; and the quality of a particular corporation’s business, finances and management.
Fundamental analysis
Part of Business Cycle - when business activity declines from its peak
Contraction
Industries highly sensitive to business cycles and inflation trends; durable goods: heavy machinery, raw materials such as steel and automobiles
Cyclical Industries
The largest component of the balance of payments; the export and import of merchandise.
Balance of Trade
The theory that government involvement in the economy was vital to the health and stability of a nation’s economy. Believed that it was the government’s right and responsibility to manipulate overall demand (and therefore manipulate the economy) by changing its own levels of spending and taxation.
Keynesian Theory
Confirm where the economy is; are those measurable factors that vary directly and simultaneously with the business cycle. (example: personal income or current job salaries indicate what consumers have to spend at that moment in time. These numbers tell us where the economy currently stands.
Coincident Indicator
A company’s ability to use long-term debt to increase its return on equity. A company with a high ratio of long-term debt to equity is said to be highly leveraged.
Financial leverage
Part of the Business Cycle - increased business activity
Expansion
Part of the Business Cycle - upper limit of expansion
Peak
Industries where stocks of companies with unusual profit potential resulting from nonrecurring circumstances.
Special Situation Industries –
When business activity stops declining and levels off
Trough
Most prominent measure of general price changes; computed each month
Consumer Price Index (CPI)
Commercial banks must deposit a certain percentage of their depositor’s money with the Federal Reserve
Reserve Requirement
The study of the business prospects of an individual company within the context of its industry and the overall economy
Fundamental analysis
All of the goods and services produced within the nation is known as _____ ______ _______.
Gross Domestic Product (aka Gross National Product)
Equity capital invested in operating companies that are not traded publicly
Private Equity
