Investing 101 Chapter 1

Stocks, Bonds, Mutual Funds, Precious Metals, Exchange Traded Funds (ETFs), Real Estate, Commodities, Currency Trading

These are all examples of investment options.

Spend money

The economy grows when consumers do what?

A slow or sluggish economy

When consumer spending lags, overall corporate growth stagnates, and investors see poor returns what could this be a sign of?

A booming economy

When people are spending money, corporations prospering, and Investments are growing, what could this be a sign of?

Consumer spending

This makes up most of our gross domestic product (GDP) and is the engine that keeps the economy flowing

Future growth

Economically Savvy investors focus on what?

Drops

When countries overproduce products or there is a low demand for a certain product the price for that product correspondingly does what?

Income

Money you receive from different sources such as Jobs gifts inheritance or Investments to buy what you need is called what?

Per capita income

The average income that a person has is called what

Disposable income

The amount of money you and your family have to spend after you pay your taxes is called what

Loss of job or retirement

Name two big changes that could affect your income

Consumption

How much you and your family spend on goods and services is called what

Federal funds rate

The interest rate that the Federal Reserve charges Banks to borrow money is called what

Raises taxes

In order to control inflation the Federal Reserve does what

It limits the money available for consumer spending

When the Federal Reserve raises taxes what effect does it have on the economy

Go down

When interest rates increase through the Federal Reserve stock prices have the tendency to do what

Increases

When the Federal Reserve lowers interest rates the money supply does what

Buy stocks

When the Federal Reserve lowers interest rates that often signals investors to do what

Treasury securities

A higher federal funds rate also means higher interest rate paid out on what types of newly issued securities

Treasury securities

This risk-free investment guarantees you steady returns and when the Federal Reserve rates go up you are guaranteed bigger interest payments on these types of securities

GDP or gross domestic product

Name the most important indicator published for determining where the the economy is heading

Consumption investment government purchases and net exports

Name the four major components of the GDP

CPI or Consumer Price Index

This index tracks retail level price changes by comparing prices for a specific basket of goods and services to base period prices

Consumer confidence index

This index monitors consumer sentiment based on monthly interviews with thousands of households

Job growth

Second only to the GDP this report is one of the most important economic indicators the statistics in this report include employment information length of average work week hourly earnings and the current unemployment rate

Housing starts

This indicator measures the new construction of single-family homes or buildings each month.

LEI Index

This index measures all the leading economic indicators

An economic Turning Point

When the Lei index moves in the same direction for 3 consecutive months what does that suggest

A slumping economy

Declining housing starts indicate what type of economy

Business inventories

As a monthly running total of how well companies are selling their products these inventories are like a big neon sign to economists and investors alike

Manufacturing Merchant wholesalers and retail reports

Business inventory data are collected from three sources what are they

Major swings

Retail inventories are the most volatile component of inventories and can cause what in the economy

Expansion

A sudden fall in business inventories they show the onset of what

A recession

A sudden accumulation of business inventories May signify falling demand and hence the onset of what

Producer Price Index (PPI)

This index tracks wholesale price changes and it also includes breakdowns on raw materials (AKA commodities) intermediate Goods (items that are in production) and finished goods (ready to hit the shelves) this coincidence indicator is also often a good predictor of the direction of the CPI

Sector

This is a broad section of the overall economy and can include more than one industry

Financial

Banking, investment banking, mortgages, accounting, insurance, and asset management are six Industries in what sector

Downtown, recession, upturn, and recovery

What are the four major cycles of the economy

Bureau of economic analysis www.bea.gov

Where can you find detailed information on this current state of US economy

Upturn

During what stage of the economic cycle should investors begin investing more actively

Sector funds

These mutual funds invest in single economic sectors like technology or Healthcare and sometimes even more Focus sector subsets like electronics and pharmaceuticals while These funds expose investors to more risk than more broad-based mutual funds they can also bring higher returns