Fichas
Economic Environment
Fichas del conjunto (21)
- 1Rise in exchange rate- exports cheaper less demand for exported goods
- imports become cheaper so demand increases
- aggregate demand falls, leading to lower growth
- inflation falls because of effect of cheaper prices from imported goods, lower aggregate demand and less demand pull inflation. - 2Fall in exchange rate- more competitive exports, increasing demand for those goods
- more expensive imports leading to reduced demand
- higher economic growth and rising aggregate demand
- potential for rising inflation
- improvement in current account balance of payments - 3Maturity transformationIn banking, where maturity or term of loans becomes longer than the maturity of the banks' deposits.
The mismatch exposes it to the risk of a run on the bank. - 4SecuritisationMoney can be raised by selling securities backed by revenue streams as varied as mortgage interest payments to Tequila sales.
- 5Collateralised Debt Obligation (CDO)Securitised debt repacked and bundled together as other forms of financial security.
In credit crisis, this tranformed a bundle of sub-prime debt into series of securities mostly with an AAA credit rating. - 6Function of central bankTo control supply of money through interest rate setting powers.
- 7M0 (narrow money)Notes and coins in circulation plus banks' operational deposits with BoE.
Growth in M0 indicates consumer spending is buoyant.
Reflects changes in economic cycle but does not cause them. - 8M4 (broad money)Notes and coins in circulation plus time deposit and instant access accounts registered by UK residents with UK banks and building societies.
Includes deposits created for lending activities as well as deposits lodged by savers.
Increase in demand for loans will result in an increase in M4. - 9VelocityThe speed of circulation of one unit of money in an economy.
Ratio of nominal GDP to stock of money.
The faster the velocity, the greater the impact of stock on prices.
Ratio of movement of stock compared with money supply. - 10Bank of England's two core purposes.Maintaining financial and monetary stability.
This means stable prices and confidence in the currency. - 11QEWhen base rate mechanism is at it limits.
Injecting money into financial system with the aim of lowering rates.
Bank creates money which it uses to buy assets such as gilts and high quality corporate debt. The central bank holds these assets as part of its reserves. The end result is more money in circulation.
Buying assets means higher asset prices and lower yields, which brings down cost of borrowing for businesses and households, further boosting spending.
As banks hold more reserves they may boost their lending so borrowing increases and so does spending. - 12Cost push inflationIf firms face increased costs and inelastic demand for their output, these rising costs will be passed on to consumers. Consumers will in turn demand higher wages, causing wage price spiral.
- 13Demand pull inflationWhen economy is operating beyond full employment level of output, prices are pulled up as a result of inflationary gap.
- 14Savings and bankingSavers are investors in financial assets.
Difference between emerging and developed economies is that in developed economies, capital markets link savers and businesses (through financial investments). In emerging markets, all such intermediation is achieved through banks. - 15Factors that affect demand-Price
-Buyer's income
-Demand for alternatives/substitutes
-Demand for other goods/services used at the same time
-Ease of purchasing
- Personal tastes - 16Factors that affect supply- Price
- Manufacture and distribution costs
- Supply of alternative products that caoult be made with same resources
- Supply of products actually produced at same time
- Events - 17Cost of capitalProduction opportunities
Time preferences for consumption
Risk
Inflation - 18Frictional unemploymentCaused by changes in the economy that lead to qualified jobseekers being temporarily unmatched with openings because of lack of knowledge, skill or time to arrange interviews.
- 19Structural unemploymentCaused by structural changes in the economy such as declines in particular industries leaving people unemployed and unqualified for other employment.
- 20Cyclical unemploymentCaused by changes in overrall economic activity/economic cycle.
- 21Natural rate of unemploymentAn economy at full employment has no cyclical unemployment so only types of unemployment are frictional and structural (natural rate of unemployment).
Not relating to changes in aggregate demand/economic cycle.
Información
- Descripción
- CIMA Financial Planning Fichas sobre Economic Environment, creado por Katerina Kritikos el 08/05/2022.
- Creado por
- Katerina Kritikos
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