Did the Federal Reserve's quantitative easing add to M1?

A: Quantitative easing (QE) is an unconventional monetary policy tool that the Federal Reserve, the U.S. central bank, engaged in from November 2008 to October 2014. During that time, the Fed used newly created money to purchase Treasuries, mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac from its member banks. All told, the central bank increased its assets by $3.6 tr...

Economists' assuptions in their economic model

A: When you look at an introductory textbook for microeconomics, it seems as though economists live in a world that barely resembles the real one. Their models are built on a series of assumptions, including that individual actors have perfect information about their choices or that subjective human values can be measured quantitatively. Some models even assume away competition, substitute goods a...

Halloween's Effect on the Economy

A: Based on the Keynesian school of economic thought, major spending holidays can have significant short-term benefits for the economy by encouraging extra purchases that might not otherwise occur. According to the National Retail Federation, in 2017 Americans planned to spend a record $9.1 billion on Halloween, up from $8.4 billion in the previous year.It could also be argued that the state ...

How can a country's debt crisis affect economies around the world?

A: A country's debt crisis affects the world through a loss of investor confidence and systemic financial instability. A country's debt crisis occurs when investors lose faith in the country's ability to make payments due to either economic or political troubles. It leads to high interest rates and inflation. It creates losses for investors in the debt and slows the global economy.The ...

How can I use the rule of 70 to estimate a country's GDP growth?

A: You could use the rule of 70 to estimate a country's gross domestic product (GDP) growth by dividing 70 by the expected GDP growth rate. The economic growth rate could be used to determine the amount of years it would take a country's GDP to double.The rule of 70 is used to estimate the number of years it would take for a certain variable to double. Divide 70 by the variable's growt...

How can marginal utility explain the 'diamond/water paradox'?

A: One of the most disconcerting problems to Adam Smith, the father of modern economics, was he could not resolve the issue of valuation in human preferences. He described this problem in The Wealth of Nations by comparing the high value of a diamond, which is unessential to human life, to the low value of water, without which humans would die. He determined "value in use" was irrat...

How do "factor endowments" impact a country's comparative advantage?

A: Factor endowments impact a country's comparative advantage by affecting the opportunity cost of specializing in producing certain goods relative to others.A comparative advantage exists when the opportunity cost of specialization is lower than that of other nations. The existence of a comparative advantage is, in turn, affected by the abundance, productivity and cost of labor, land and capi...

How is a company's stock price and market cap determined?

A: A company's worth, or its total value, is called its market capitalization, or "market cap", and it is represented by the company's stock price multiplied by the number of shares outstanding.For example, if Microsoft (MSFT) is trading for $71.41, on a particular day, and has 7.7 billion shares outstanding, the company is valued at $71.14 x 7.7 billion = $ 550 bi...

How much of the United States' money supply is M1?

A: As of February 2015, the M1 money supply in the United States was $2,988.20 billion. This is based on figures reported by the Federal Reserve. M1 has fluctuated over the past few decades, as expected. At the beginning of the 2015 calendar year, for example, M1 was calculated at $2,924.20 billion. Between 1959 and 2015, the M1 supply averaged $818.62 billion. The February 2015 numbers represent ...

How True Is 'What's Good for Wall St. Is Bad for Main St.'?

A: Let's start by defining "Wall Street" and "Main Street." Wall Street, in its broadest sense, refers to the financial markets and the financial institutions, including corporate executives, financial professionals, stockbrokers and corporations. Main Street, on the other hand, refers to many things, including the overall economy, the individual investor and employees...

If a particular good's price elasticity is high, does this mean the supplier should increase the supply, decrease it, or keep it constant?

A: In economics, price elasticity is a measure of how reactive the marketplace is to a change in price for a given product. However, price elasticity works two ways. While price elasticity of demand is a reflection of consumer behavior as a result of price chance, price elasticity of supply measures producer behavior. Each metric feeds into the other. Both are important when analyzing marketplace ...

Unemployment & Recession - What's the Relation?

A: A recession has a domino effect, where increased unemployment leads to less growth and a drop in consumer spending, affecting businesses, which lay off workers due to losses. A recession occurs when there are two or more consecutive quarters of negative gross domestic product (GDP) growth. In other words, economic growth slows during a recession. Attributes of an economy experiencing a period o...

What are the primary activities of Michael Porter's value chain?

A: The primary activities of Michael Porter's value chain are inbound logistics, operations, outbound logistics, marketing and sales, and service. The primary activities within Michael Porter's value chain are used to provide a company with a competitive advantage in any one of the five activities so it has an advantage in the industry in which it operates.The goal of the five activit...

What country is the world's largest exporter of goods?

A: China has been the world's largest exporter of goods since 2009. Official estimates suggest Chinese exports amounted to $1.904 trillion in 2013. Since 2013, China has also become the largest trading nation in the world. This position was previously held by the United States.Chinese growth as a global trading giant has been exceptionally quick. Throughout their long history, the Chinese popu...

What does a New York Stock Exchange membership entail, and why is it known as 'owning a seat'?

A: Owning a seat on the New York Stock Exchange (NYSE) enables a person to trade on the floor of this stock market, either as an agent for someone else (floor broker) or for one's own personal account (floor trader). Prices for seats on the exchange are determined by supply and demand, and they have ranged from $4,000 to over $2,500,000.However, to own a seat, a trader or broker must meet more...

What does it mean to have 'dry powder'?

A: The term "dry powder" has several meanings in the financial world, referring metaphorically to financial reserves and (paradoxically) liquidity.Often it is used in reference to an individual company's cash reserves. These cash reserves may be needed by the company to meet its obligations, particularly during difficult economic times, so the company may seek to build up its "d...

What factors go into determining a business's shutdown point?

A: Three main factors help determine a business' shutdown point: how much variable cost goes into producing a good or service, the marginal revenue received from producing that good or service, and the types of goods or services provided by the firm. For a one-product firm, the shutdown point occurs whenever the marginal revenue drops below marginal variable costs. For a multiproduct firm, shu...

What is 'capital' in relation to the factors of production?

A: When economists refer to capital, they usually mean the physical tools, plants and equipment that allow for increased work productivity. Capital comprises one of the four major factors of production, the others being land, labor and entrepreneurship. Common examples of capital include hammers, tractors, assembly belts, computers, trucks and railroads. The word "capitalist" refers to t...

What is Fisher's separation theorem?

A: Fisher's separation theorem stipulates that the goal of any firm is to increase its value to the fullest extent. The theorem is named after American economist Irving Fisher, its developer.The theorem can be broken down into three key assertions. First, a firm's investment decisions are separate from the preferences of the firm's owners (including shareholders). Second, a firm's ...

What is the Federal Reserve Board's market risk capital rule?

A: The Federal Reserve Board’s market risk capital rule, or MRR, sets forth the capital requirements for banking organizations with substantial trading activities. The MRR rule requires banks to adjust their capital requirements based on the market risks of their trading positions. The rule applies to banks worldwide with total trading activity of more than 10% of total assets or banks with asse...

What transactions are included in a country's balance of payments?

A: The balance of payments is supposed to be for a country what a balance sheet is for a company. For example, the balance of payments for the United States accounts for all international transactions between individuals, businesses and government agencies. Each transaction carries a corresponding debit and credit – debits for money leaving, credits for money entering.Some differences exist betw...

What's the best investing strategy to have during a recession?

A: During a recession, investors need to act cautiously but remain vigilant in monitoring the market landscape for opportunities to pick up high quality assets at discounted prices. These are difficult environments, but they also coincide with the best opportunities.In a recessionary environment, the worst performing assets are highly leveraged, cyclical and speculative. In these conditions, risk ...

What's the difference between a capital market and the stock market?

A: Capital market is a broader term that includes the stock market and other venues for trading financial products. The stock market allows investors and banking institutions to trade stocks, either publicly or privately. Stocks are financial instruments that represent partial ownership of a company. These documents are used extensively by companies as a means of raising necessary capital. Within ...

What's the difference between a long and short position in the market?

A: When speaking of stocks, if an investor has long positions it means that the investor has bought and owns those shares of stocks. By contrast, if  the investor has short positions it means that the investor owes those stocks to someone, but does not actually own them yet. For instance, an investor who owns 100 shares of Tesla (TSL...

What's the Difference Between a Market Economy and a Command Economy?

A: Market economies and command economies occupy two polar extremes in the organization of economic activity. The primary differences lie in the division of labor or factors of production and the mechanisms that determine prices. The activity in a market economy is unplanned; it is not organized by any central authority but is determined by the supply and demand of goods and services. The United S...

What's the difference between a Nasdaq market maker and a NYSE specialist?

A: What's the main difference between a specialist and a market maker? Not much.Both the New York Stock Exchange (NYSE) specialist and the Nasdaq market maker try to increase the liquidity on their respective exchanges and provide more fluid and efficient trading.A specialist is a dealer representing a NYSE specialist firm - one of the main facilitators of trade on the exchange. A market maker...

What's the difference between a representative sample and a random sample?

A: A representative sample is a group or set chosen from a larger statistical population or group of factors or instances that adequately replicates the larger group according to whatever characteristic or quality is under study. A random sample is a group or set chosen from a larger population or group of factors of instances in a random manner that allows for each member of the larger group to h...

What's the difference between cyclical unemployment and seasonal unemployment?

A: Cyclical unemployment arises due to changes in the business cycle; it occurs when the gross domestic product (GDP) falls and the economy enters a phase of contraction. Workers who lose their jobs due to a business cycle downturn can expect to get hired back once the downturn is over. On the other hand, seasonal unemployment occurs in regular patterns, usually on an annual basis, and is caused b...

What's the difference between diminishing marginal returns and returns to scale?

A: Diminishing marginal returns are an effect of increasing input in the short run while at least one production variable is kept constant, such as labor or capital. Returns to scale are an effect of increasing input in all variables of production in the long run.Diminishing Marginal ReturnsThe law of diminishing marginal returns states with every additional unit in one factor of pr...

What's the difference between microeconomics and macroeconomics?

A: Macroeconomics and microeconomics, and their wide array of underlying concepts, have been the subject of a great deal of writings. The field of study is vast; so here is a brief summary of what each covers. Microeconomics is generally the study of individuals and business decisions, while  macroeconomics looks at higher up country and government decisions.MicroeconomicsMicroecono...

What's the difference between monopoly and monopsony?

A: The difference between a monopoly and monopsony lies in the entity that is being singularly controlled. A monopoly exists when a single individual or organization is the sole supplier of a particular good or commodity, whereas a monopsony refers to control of the market through which specific goods or services are purchased. Both signify conditions of imperfect competition, in which a lone enti...

What's the difference between Porter's 5 Forces and PESTLE analysis?

A: Porter's Five Forces and PESTLE analysis are two sets of business tools for analyzing situations and helping companies to improve their competitive positions. Porter's Five Forces looks at where the power lies in a competitive situation. An industry with high profits is a difficult environment for new competitors to enter. Suppliers and buyers both have few options available, and t...

What's the difference between Porter's 5 Forces and SWOT analysis?

A: Porter's Five Forces and SWOT analysis are both tools commonly used by companies to conduct analyses and make strategic decisions. Each of the models seeks to define the company's position in the market. The major distinction is that Porter's Five Forces model is used to analyze the competitive environment within an industry, often focusing on external forces, while a SWOT analysis ...

What's the difference between primary and secondary capital markets?

A: The difference between the primary capital market and the secondary capital market is that in the primary market, investors buy securities directly from the company issuing them, while in the secondary market, investors trade securities among themselves, and the company with the security being traded does usually not participate in the transaction.The primary marketWhen a company publicly sells...

What's the difference between publicly- and privately-held companies?

A: Privately-held companies are - no surprise here - privately held. This means that, in most cases, the company is owned by the company's founders, management or a group of private investors. A public company, on the other hand, is a company that has sold all or a portion of itself to the public via an initial public offering (IPO), meaning shareholders have claim to part of the company's...

What's the difference between regular supply and demand and aggregate supply and demand?

A: Supply and demand expresses a relationship between what producers supply and what consumers demand in economics. Aggregate supply and demand is the total supply and total demand in an economy at a particular period of time and particular price threshold. A curve is used to graph the aggregate supply and aggregate demand. These curves illustrate the relationships among price points, time, supply...

What's the difference between the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange?

A: Both the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME) trace their roots to 19th-century Chicago, where each began as a nonprofit market for agricultural transactions. While the two shared many historical developments, they emphasized different investments and operated in different fashions until their merger into CME Group, which also includes the NYMEX and COMEX as p...

What's the difference between the current account and the capital account?

A: The current account records exports and imports of goods and services as well as unilateral transfers whereas the capital account records transactions of purchase and sale of foreign assets and liabilities during a particular year. The current account considers goods and services currently being produced. The credit and debit of foreign exchange due to these transactions are also recorded in th...

What's the difference between the Dow Jones Industrial Average and the S&P 500?

A: The Dow Jones Industrial Average (DJIA) and the Standard and Poor's 500 (S&P 500) are both widely followed American stock market indexes. The major differences between them lies in their diversity and weighting methodology.The DJIA is the oldest and best-known index. Started in 1896, the index consists of 30 North American blue chip stocks selected by the editors of The Wall S...

What's the difference between the income effect and the price effect?

A: The price effect is the impact on the market based on how the consumer is spending money as a result of the income effect. The income effect is the manner in which a consumer spends money or demands services and goods based on an increase or decrease in his income. The price effect is composed of the income effect and another economic factor, the substitution effect. The substitution effect occ...

What's the difference between the income effect and the substitution effect?

A: The economic concepts of income effect and substitution effect express changes in the market and how these changes impact consumption patterns for consumer goods and services. The income effect expresses the impact of increased purchasing power on consumption, while the substitution effect describes how consumption is impacted by changing relative income and prices. Different goods and ser...

What's the difference between the prime rate and the discount rate?

A: Both the prime rate and discount rate are used in the financial system and set in the United States by the Federal Reserve Bank. The discount rate is used when the Federal Reserve makes a loan to a private bank or when commercial banks lend to each other. The prime rate, however, is the index that is used when consumer loan product rates are determined. These two rates make a significant impact...

What's the difference between the prime rate and the repo rate?

A: The prime rate is used as the index for rates offered in consumer lending and loan products. When government central banks purchase securities back from private banks in exchange for cash, the repo rate is used. "Repo" is a shortened form of the term "repossession" and indicates a repurchase of securities by the government that previously sold them. The repo rate system allo...

What's the highest year-over-year inflation rate in the history of the U.S.?

A: Since the founding of the United States in 1776 the highest year-over-year inflation rate observed was 29.78% in 1778. Inflation is calculated using the yearly change in the consumer price index (CPI), which was first introduced in 1913. CPI data before 1913 is estimated using a variety of methods and sources. Since the introduction of the CPI, the highest inflation rate observed was 19.66% in ...

What's the relationship between R-squared and beta?

A: Beta and R-squared are two related, but different, measures. A mutual fund with a high R-squared correlates highly with a benchmark. If the beta is also high, it may produce higher returns than the benchmark, particularly in bull markets. R-squared measures how closely each change in the price of an asset is correlated to a benchmark. Beta measures how large those price changes are in rela...

Which factors can influence a country's balance of trade?

A: A country's balance of trade is defined by its net exports (exports minus imports) and is thus influenced by all the factors that affect international trade. These include factor endowments and productivity, trade policy, exchange rates, foreign currency reserves, inflation and demand. A crucial point to note is both goods and services are counted for exports and imports...

Which is more important to a nation's economy, the balance of trade or the balance of payments?

A: There is no question the composition of a country's balance of payments is more important than its balance of trade. This does not make the balance of trade unsubstantial; after all, it comprises a large part of the balance of payments. But the balance of trade is only one side of the ledger, and it ignores much of what is really going on in an economy. Think of it like accounting; looking ...

Who are Whole Foods' main competitors?

A: Whole Foods' main competitors are Sprouts Farmers Markets (SFM) and Trader Joe's. However, Whole Foods' long-time strategy of convincing people to pay more for organic, natural foods has been so successful that such foods are increasingly showing up on shelves in many American grocery stores, including major supermarket behemoths such as Kroger (KR). Though Whole Foods has been...

Why aren't economists rich?

A: "If you're so smart, how come you're not rich?" is a question that economists seem to invite. If they can explain the intricacies of economies and worldwide markets, surely they could make a killing in the stock market. This is often not the case. One disadvantage economists have is that their profession deals heavily with theoretical, rather than practical, studies. They are ...

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