Unit 8

The Conference Board releases information about the economy on a periodic basis. What are the 3 economic indicators they list?

1. leading; money supply, stock market, housing permits and manufacturing orders 2. coincident (current); industrial production 3. lagging; CPI for services, prime interest rate *GDP is not an economic indicator

Deflation

A decrease in the value of the monetary unit. Exports increase because domestically produced goods are less expensive to those using foreign currency

Expansionary fiscal policy

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

Some prominent stock market pundits are predicting that the economy will slide into a recession in the near future. Furthermore, they are expecting moderate deflation during the same period. If this were to happen, your clients would probably enjoy the greatest overall return from investing in A) commodities B) U.S. Treasury bonds C) common stock D) real estate

B) U.S. Treasury bonds The combination of recession and deflation leads us to a security with the highest safety. The other 3 choices tend to rise with inflation and, therefore, are often thought of as inflation hedges. But, deflation is the opposite and you'd want to be in fixed investments because their purchasing power will increase.

An investor using yield curve analysis would expect to view bonds of A) varying quality over a number of maturities B) a single issuer over varying maturities C) varying quality of similar maturities D) similar quality over varying maturities

B) a single issuer over varying maturities The most common yield curves are drawn using U.S. Treasury securities. The curve is plotted using maturities ranging from the short-term T-bills to the long bonds. There are other curves drawn with bonds from other sectors, such as corporate bonds, to show the yield spread, but that is going beyond the scope of this question.

Core inflation

CPI minus food and energy costs

To determine the amount of change in the GDP from 1 year to another, both years' GDP should be converted into A) the exchange value of the dollar, as compared with major foreign currencies B) the current dollar price of gold bullion C) international depositary receipts D) constant dollars

D) constant dollars To compare GDP from 1 year to another, and thus to compare the amount of actual economic activity, economists use constant dollars to eliminate distortions caused by inflation. U8LO2

Rate that banks give to their stronger borrowers

Prime rate

Inertial Inflation

Tendency of an inflation rate to remain constant or consistent unless there is a demand shock or supply shock. Prices will rise slowly during an initial period of inflation and then begin to "pick up steam" as a result of some economic shock

Increase of importing goods into the US does what to the US dollar?

Weakens it. A significant increase in imports represents a large outflow of U.S. dollars which results in a negative trade balance. As this builds, the value of the dollar falls against those currencies who have a positive trade balance.

Rate that broker-dealers pay on stock market collateral pledged accounts

call loan rate

Rate at which bank borrows from the Federal Reserve

discount rate

Rate of overnight loans between banks are made at

the federal funds rate

Countercyclical assets

those whose prices tend to move in the opposite direction of the overall economy. Historically, the price of precious metals, especially gold (and stock in gold mining companies),