Economic Links for
Domain Four: Macroeconomics: The
National Economy
This
domain focuses on analyzing economic performance indicators, describing
the interaction between aggregate supply and aggregate demand, analyzing
the fiscal policy of the federal government and monetary policy of the
Federal Reserve. The major textbook chapters that cover this domain are
11 and 12.
Textbook: Clayton, Gary. "Economics: Principles and Practices,"
Glencoe/McGraw-Hill, 1999.
Chapter 11: Money and Banking
Vocabulary
· barter
· fiat money
· specie
· legal tender
· demand deposit
account
· NOW accounts
· deregulation
Functions of Money
1. Medium of Exchange
· Stability
· Portability
· Durability
· Uniformity
· Divisibility
· Availabiltiy
· Acceptability
2. Measure of Value
3. Store of Value
Gold Standard
Advantages
· Security
· Scarcity = Value
Disadvantages
· Inflexible supply
restricts economic growth
· Threat of mass
conversion
· Gold prices not
stable
Chapter 12: Financial Markets
Three parts to the financial markets
Savers (deposits in financial institutions)
Borrowers (loans from financial institutions)
Lenders (financial intermediaries)
Banks and Savings &
Loans
Mutual Funds
Insurance Companies
Finance Companies
Considerations when selecting investments
Investment Objectives (short-term; long-term)
Risk (Safety)
Yield (Rate of Return)
Liquidity (convertibility to cash)
Important relationships exist between these considerations:
There is a direct relationship between risk and yield.
There is an inverse relationship between yield and
liquidity.
Types of Investments:
U.S. Savings Bonds (full faith and credit of U.S. gov't)
Treasury bills (up to 1 year)
Treasury Notes and Bonds (2 to 30 years)
Demand Accounts (Checking) (Insured FDIC)
Passbook savings and CDs (Insured FDIC)
Money Market deposits (Insured FDIC)
Pension and retirement (IRA and 401k; tax deferred)
Life Insurance
Municipal Bonds (tax-exempt)
Corporate bonds
Corporate stocks
Mutual funds (diversify)
Money Market funds
Fixed Income (bond)
Equity funds (stock)
Commodities, options, futures, foreign exchange, etc.
Equities Markets (The Stock Markets)
Efficient Market Hypothesis
Diversification
Primary and Secondary Markets
Stock Exchanges
NYSE (3000 listings, large "Blue Chip" companies)
AMEX (1000 listings, smaller and speculative)
Global Exchanges (NIKKEI, FTSE, Hang Seng)
OTC (NASDAQ, newer, tech companies, dot.coms)
Stock Indexes (measure performance)
DJIA (sample of 30 NYSE stocks, not industrial anymore)
S&P 500 (500 stocks; all exchanges)
Bulls and Bears
Bulls (rising or strong market)
Bears (falling or mean market)
Futures Market (i.e., cattle futures)
Futures contract (agree to buy later; largely agricultural)
Options contract (agree to maybe buy or sell later)
Call (right to buy later at a
specified price)
Put (right to sell later
at a specified price)
Click here for Problem Solving Activity: Problem
Five
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