Unit 14: Economics & Analysis

Question 1

Refers to governmental budget decisions, which can include increases and decreases in:
• Federal Spending
• Money Raised Through Taxes
• Federal Budget Deficits or Surpluses

Answer 1

Fiscal Policy

Question 2

The flow of money between the United States and other countries

Answer 2

Balance of Payments

Question 3

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

Answer 3

Defensive Industries

Question 4

The number of issues closing up or down on a specific day

Answer 4

Market breadth

Question 5

Reflect where the economy is going; spot checks of business activity that reliably predict trends in the economy.

Answer 5

Leading Indicators

Question 6

The largest and most liquid component of the money supply is M_

Answer 6

M1

Question 7

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.

Answer 7

Monetarist Theory

Question 8

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)

Answer 8

Expansions

Question 9

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.

Answer 9

Technical analysis

Question 10

More money flowing out of the country than in

Answer 10

Deficit

Question 11

time deposits of more than $100K and repurchase agreements with terms longer than one day are M_

Answer 11

M3

Question 12

The general increase in prices; a barometer (indicator) in the general direction of price levels.

Answer 12

Inflation

Question 13

Severe contractions; lasting six quarters (18 months) or more with unemployment rates greater than 15%

Answer 13

Depression

Question 14

The FRB affects the money supply through 3 policy tools:

Answer 14

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

Question 15

The difference between current assets and current liabilities

Answer 15

Working Capital

Question 16

Periods of economic expansion followed by periods of economic contraction

Answer 16

Business Cycle

Question 17

Time deposits: savings accts, nonnegotiable CDs, money market funds, and overnight repurchase agreements are M_

Answer 17

M2

Question 18

Rare; is the general decline in prices; usually occurs during severe recessions when unemployment is on the rise.

Answer 18

Deflation

Question 19

The interest rate banks charge each other for loans. The most volatile rate in the economy

Answer 19

Federal Funds Rate

Question 20

Holds that the government should allow market forces to determine prices of all goods.

Answer 20

Supply-Side Economics

Question 21

Who determines monetary policy and takes action to implement its policies

Answer 21

Federal Reserve Board

Question 22

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)

Answer 22

Downturn

Question 23

Mild, short-term contractions; when decline in real output of goods and services lasts for six months or more.

Answer 23

Recession

Question 24

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.

Answer 24

Lagging Indicator

Question 25

Prolonged periods of slow or little economic growth; accompanied by high unemployment

Answer 25

Stagnation

Question 26

Unusual combination of inflation and high unemployment

Answer 26

Stagflation

Question 27

All money commercial banks deposit at Federal Reserve Banks, including money exceeding the reserve requirement

Answer 27

Federal Funds

Question 28

Industries that are growing faster than the economy as a whole; growth stocks usually pay little or no dividends.

Answer 28

Growth Industries

Question 29

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.

Answer 29

Disintermediation

Question 30

The study of supply and demand

Answer 30

Economics

Question 31

More money flowing into the country than out

Answer 31

Surplus

Question 32

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.

Answer 32

Fundamental analysis

Question 33

Part of Business Cycle - when business activity declines from its peak

Answer 33

Contraction

Question 34

Industries highly sensitive to business cycles and inflation trends; durable goods: heavy machinery, raw materials such as steel and automobiles

Answer 34

Cyclical Industries

Question 35

The largest component of the balance of payments; the export and import of merchandise.

Answer 35

Balance of Trade

Question 36

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.

Answer 36

Keynesian Theory

Question 37

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.

Answer 37

Coincident Indicator

Question 38

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.

Answer 38

Financial leverage

Question 39

Part of the Business Cycle - increased business activity

Answer 39

Expansion

Question 40

Part of the Business Cycle - upper limit of expansion

Answer 40

Peak

Question 41

Industries where stocks of companies with unusual profit potential resulting from nonrecurring circumstances.

Answer 41

Special Situation Industries –

Question 42

When business activity stops declining and levels off

Answer 42

Trough

Question 43

Most prominent measure of general price changes; computed each month

Answer 43

Consumer Price Index (CPI)

Question 44

Commercial banks must deposit a certain percentage of their depositor’s money with the Federal Reserve

Answer 44

Reserve Requirement

Question 45

The study of the business prospects of an individual company within the context of its industry and the overall economy

Answer 45

Fundamental analysis

Question 46

All of the goods and services produced within the nation is known as _____ ______ _______.

Answer 46

Gross Domestic Product (aka Gross National Product)

Question 47

Equity capital invested in operating companies that are not traded publicly

Answer 47

Private Equity