Exam 11: The Macroeconomic Environment for Investment Decisions

Financial crises lead to

The price of gold tends to rise during inflationary periods.

The federal funds rate is the rate banks charge each other when they borrow reserves.

When the Federal Reserve seeks to contract the money supply, it may

The Federal Reserve is the central bank of the United States.

The federal funds rate is the rate the federal government pays when it borrows funds.

A federal government deficit may be financed by 1. the general public buying government bonds 2. commercial banks buying treasury bills 3. the Federal Reserve selling securities

The sum of cash, currency, and demand deposits is

The fiscal policy of the federal government excludes

Gross domestic product (GDP)is the sum of spending on consumer goods, government spending, and investing in stocks and bonds.

If the country's exports increase, GDP declines.

An increase in the expected rate of inflation suggests that investors should sell the stocks of natural resource companies (e.g., gold and silver).

M2 is a narrower definition of the money supply and excludes savings accounts in commercial banks.

Changes in the price of gold are often related to the anticipation of inflation.

If the Federal Reserve lowers the target federal funds rate,

An increase in the targeted federal funds rate implies that the Fed is buying securities.

Monetary and fiscal policy may affect stock prices through their impact on corporate earnings.

An easy monetary policy should generate a lower required return for common stock.

Deflation is a period of

One means to invest in anticipation of deflation is to