Financial Markets - Financial Instruments - Bonds
9 important questions on Financial Markets - Financial Instruments - Bonds
Stock prices, bond prices and the business cycle : PEAK=
Liquid investments like saving-accounts;
Characteristics: rising interest rates, rising interest rates, inflation rises, shortage on labour market
Stock prices, bond prices and the business cycle : Contraction
Bonds
Characteristics: more liquidity, so lower interst rates = bond prices rise
Stock prices, bond prices and the business cycle : Trough, beginning recovery
Shares: stocks, being hammered down during the economic recession, may surge.
Because unemployment is typically a lagging indicator of economic growth, you should not be surprised to see stocks rising while unemployment is still high
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Stock prices, bond prices and the business cycle : Turning points
Indicators of short run economic fluctuations
- Leading indicators preview signs of improvement or decline in economic conditions
- Coincident indicators coincide with current economic activity
- Lagging indicators are signs that do not emerge until after a change in economic conditions
Forces contraction, downturn
- Firms reach capacity/ output increase impossible/ I -
- Consumers have now purchased all durables (Cd) they needed/ Cd- / I-/ AD-
- I inventories stock increases as demand- / AD -
- Interest rates veryhigh during peak/ CD- and I- / AD-
- Export - as higher prices cause lower international price competitiveness / AD-
- Automatic stabilizers; Anti-cyclical measures of government and CB ( G-, T^; I ^) = AD -
Long term economic growth ( supply side and economic growth)
Shift of ASlt curve to the right:
∆ potential output or ∆ natural rate of output
∆production capacity:
-technological progress (innovation)
-quantities of
- labour (e.g. immigration↑, minimum wages↓, participation rate↑)
- capital stock (K) (∆ I => depends on savings ratio s) and
- natural resources (e.g. world oil market)
Explanation of economic growth (Lt)
∆ Population growth %
∆ Productivity %
+= ∆ Economic growth %
Policies for achieving faster Lt growth e.g. ( = structural measures as influences supply side)
- Stimulate saving ∆S_ ∆I_ ∆K ( Capital stock)
- Stimulate research and development;
- Improve the quality of education;
- Provide international aid to developing countries
- Encourage international trade
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