Unit 6 Basic Economic
Gross domestic product (GDP) is increasing. Real interest rates are relatively high. Consumer sentiment is strong, as are auto and retail sales. Labor productivity is declining. What state of the business cycle is the economy likely experiencing?
Expansion to peak
what is inflation commonly caused by?
increased consumer demand
________ is not included in the Conference Board's list of economic indicators
GDP
Which of the statements below best describes why a normal yield curve is positively sloped?
Investors demand higher interest when lending their money for longer periods.
The Conference Board releases information about the economy on a periodic basis. Included are a number of different indicators. These indicators can be used to predict how the economy as a whole might change. Which of the following would be considered a leading indicator?
Stock prices as measured by a broad index such as the S&P 50
what broker-dealers pay on stock market collateral pledged for margin accounts.
call loan collateral
Whenever money from a foreign source enters the United States, it becomes a
credit item in the U.S. balance of payments
refers to the difference between yields of bonds with similar maturities but different ratings.
credit spread
The contraction phase of the business cycle is least likely accompanied by
decreasing unemployment
obacco industry and producers of nondurable consumer goods (e.g., toilet paper and basic clothing) are considered
defensive industries
relies on government spending and is affected by conditions not related to our personal incomes
defensive industry
what does the federal reserve increase when the economy becomes overhead with double digit inflation
discount rate
when a bank borrows from the Federal Reserve, it does so at the
discount rate
condition where the rate of price increases reaches a stable equilibrium and stays there until a shock to the system occurs, at which time, the rate of inflation changes
inertial inflation
A bond analyst is plotting a yield curve and notices that short-term maturities have higher yields than intermediate and long-term maturities. This is an example of
inverted yield curve
various macroeconomic theories and models of how aggregate demand strongly influences economic output and inflation
keynesian
average duration of unemployment, leading or lagging?
lagging
Average weekly initial claims for unemployment insurance, leading or lagging?
leading
the stock market and market indices are ____________ indicators of the economy's corporate and financial performance.
leading
what type of indicator is stock indices and manufacturing?
leading
The amount of money in the economy determines the overall price level over time; therefore, the Federal Reserve should control the growth of the amount of money in the economy in a gradual and predictable way.
monetarist economic position
Among the responsibilities of the Federal Reserve (the Fed) is influencing the supply of money and credit in the economy. When performing this function, adjusting which of the following is not a tool at its disposal
the prime rate
The federal government's fiscal policy can have a great impact on
the securities markets
business cycle occurs at the end of a contraction phase when businesses are operating at their lowest capacity levels.
trough
If disposable personal income has fallen steadily over the past year, which of the following is most likely going to be affected?
Automotive industry
measures the rate of increase or decrease in a broad range of prices, such as food, housing, medical care, and clothing.
CPI
The stock market, which anticipates economy activity, is a
LEADING INDICATOR
Which of the following statements regarding the economics of fixed-income securities are true?
Short-term interest rates are more volatile than long-term rates Long-term bond prices react more than short-term bond prices given a change in interest rates
All the pundits are predicting bad times ahead—not only a recession but a period where prices actually fall (deflation). If they are right, the best place for your client would probably be
U.S. Treasury securities.
what is a good hedge against deflation (economic slump)?
US treasuries
that excludes certain volatile goods prices.
core inflation
maintains future earnings that are likely to withstand an economic downturn
defensive stock
keynesian theory is a _______economic theory
macro
Reserve requirements, discount rates,, and money supply are components of what
monetary policy by the fed
All of the following are leading indicators for economic growth except
prime rate
higher interest rates tend to do what to corporate growth and earnings
slow down
who carries out monetary policy?
the fed reserve
When a bank that is a member of the Federal Reserve System borrows from another member bank, the rate that is charged is known as
the federal funds rate.
Overnight loans between banks are made at
the prime rate
shows the relationship between short-term and long-term interest rates
yield curve
A common measurement used to evaluate attitudes regarding future economic conditions is the difference in yields between U.S. Treasury bonds and corporate bonds. This is known as
yield spread
While listening to a commentator on cable TV, you hear the statement, "The flight to quality has ended." What would you expect the effect of this to be?
yield spreads are narrowing
A frequently used metric by analysts is the yield, or credit, spread. Common methods of computing this would be comparing which of these?
Bonds of similar quality and different maturities Bonds of different quality and similar maturities
The average cost of goods and services (market basket) purchased by consumers, compared to those same goods and services purchased during a base period
CPI
Which of the statements below best describes why a normal yield curve is positively sloped?
Investors demand higher interest when lending their money for longer periods
Which school of economists encourages a government to spend money to move the economy into an expansionary phase?
Keynesian
Which of the following statements describes the federal funds rate?
The federal funds rate represents the interest charged on reserves, traded among commercial banks for overnight use, in amounts of $1 million or more.
Which of the following is not a characteristic of expansionary monetary policy?
The reserve requirement will be increased
the most common yield curves are drawn using what?
US Treasuries using short term t-bills to the long bonds
when interest rates (discount rate) rise, what happens to the prime rate?
also increases
the prime rate is set by who?
banks
The federal government finances its deficit spending by selling
bonds
starts by attempting to find superior performing companies, regardless of the industry
bottom up
average prime rate, leading or lagging?
lagging
Yield curve analysis plays an important role as a benchmarking and forecasting tool for the future direction of interest rates. In most cases, this analysis involves examining bonds of
single issue
The federal government's fiscal policy is its policy for managing
taxation, spending, and debts
Which of the following is a component of U.S. fiscal policy?
taxing and budgeting
Core inflation is best described as an inflation rate
that excludes certain volatile goods prices.
the discount rate is controlled by who?
the Fed
aggregate demand
the amount of goods and services in the economy that will be purchased at all possible price levels
_________ spreads generally indicate a concern about the economy
wider
During an economic downturn, one would expect to see
higher unemployment
Generally, an inverted yield curve is caused by
investors buying long-term bonds and selling short-term bonds.
is CPI leading or lagging?
lagging
how often is CPI computed?
monthly
_________ spreads generally indicate economic optimism
narrow
Manufacturing and trade sales is a __________ indicator
coincident
what type of indicator is industrial production?
coincident
Increases in personal income reflect current, not future, activity and are therefore considered a _______________
coincident indictor
To compare GDP from one year to another, and thus to compare the amount of actual economic activity, economists use
constant dollars - to elimiate distortins caused by inflation
Which of the following would probably not be an attractive investment during periods of rising inflation?
corporate bonds
It is during periods of economic contraction that interest rates tend to
decline
Which of these is a definition of inflation?
decrease in the value of the monetary unit
When a bank borrows from another bank on an overnight basis
federal funds rate
If the yield curve is positive (sloping upward), this means that long-term interest rates are
higher
When the yield curve is positively sloped (and thus normal), long-term bonds carry
higher interest rates than short-term bonds of the same quality
how does the FRB attempt to slow the economy decrease the money supply?
increase interest rates
do economists use agricultural employment as an indicator?
no
Under the concept of inertial inflation,
prices tend to increase at a steady rate until the system receives an economic shock
inflation deals to a decrease in what?
purchasing power of the monetary unit