Economic Concepts and Markets Flashcards

Which of the following best characterizes a 'bear market'?

Answer: A market decline of 20% or more from its recent peak sustained over at least two months

A bear market is conventionally defined as a decline of 20% or more in a broad market index from its most recent peak, typically lasting two months or longer.

The Consumer Price Index (CPI) primarily measures:

Answer: Changes in prices paid by urban consumers for a representative basket of goods and services

The CPI measures changes in the price level of a weighted average market basket of consumer goods and services purchased by urban households.

In economics, 'monetary policy' refers to actions taken by:

Answer: The Federal Reserve to manage the money supply and interest rates

Monetary policy is conducted by the Federal Reserve, which controls the money supply and credit conditions to achieve macroeconomic goals like price stability and full employment.

The 'multiplier effect' in economics describes:

Answer: How an initial change in spending can lead to a larger total change in economic output

The multiplier effect occurs because an initial injection of spending generates income for others, who in turn spend a portion of it, creating a chain reaction that amplifies the total economic impact.

Which statement about the relationship between bond prices and interest rates is correct?

Answer: Bond prices and interest rates move in opposite directions

Bond prices and interest rates have an inverse relationship: when market interest rates rise, existing bond prices fall to make their fixed payments competitive with newer higher-yielding bonds.

A market is considered 'perfectly competitive' when it has all of the following EXCEPT:

Answer: Significant barriers to entry and exit

Perfect competition requires free entry and exit with no barriers; significant barriers to entry are a characteristic of oligopolies or monopolies, not perfect competition.

Which of the following best describes 'stagflation'?

Answer: A period of economic stagnation combined with high inflation

Stagflation is the simultaneous occurrence of high inflation and economic stagnation (slow growth with high unemployment), which defies the traditional trade-off described by the Phillips Curve.