Macroeconomics is the study of the overall economy, including growth, inflation, employment, and government policies that affect economic performance.
What are the four phases of the business cycle?
The business cycle consists of four phases: Expansion (economic growth), Peak (highest point before decline), Contraction (economic slowdown or recession), and Trough (lowest point before recovery).
What is Gross Domestic Product (GDP)?
GDP represents the total value of goods and services produced within a country during a specific period. It is a key indicator of economic health and growth.
What is inflation and why is it important?
Inflation is the rate at which prices for goods and services rise over time. It affects purchasing power and economic stability, influencing central bank policies.
How do interest rates affect the economy?
Interest rates, set by central banks, influence borrowing costs, investment, and economic growth. Higher rates slow borrowing and spending, while lower rates stimulate them.
How can GDP growth rate comparisons help investors?
Comparing GDP growth rates between countries helps investors assess economic health, market potential, and risks associated with investing in different economies.
Which industries benefit from lower interest rates?
Industries like real estate, construction, and consumer goods benefit from lower interest rates due to increased affordability of loans and higher consumer spending.
Why is the unemployment rate an important economic indicator?
The unemployment rate measures the percentage of job-seeking individuals in the labor force, reflecting economic health and workforce participation.
What is the difference between fiscal and monetary policy?
Fiscal policy involves government taxation and spending to influence the economy, while monetary policy is managed by central banks through interest rates and money supply control.
How does the expansion phase affect economic indicators?
During expansion, GDP growth is positive, unemployment is low, consumer spending rises, and inflation remains moderate, fueling economic growth.
What triggered the 1929 Wall Street Crash?
The 1929 crash was caused by excessive stock speculation, margin trading, and economic weaknesses, leading to a market collapse and the Great Depression.
What was the impact of the 2008 Global Financial Crisis?
The crisis led to widespread bank failures, stock market losses, housing market collapse, and a global recession due to subprime mortgage defaults.
What was a key driver of the 1980s-1990s economic expansion?
Technological advancements, globalization, and economic deregulation contributed to strong GDP growth and rising stock markets during this period.
Why is sector diversification important in investing?
Diversifying across sectors helps investors reduce risk by spreading investments across different industries that may perform differently in various economic conditions.
Which sectors perform well during economic contractions?
Defensive sectors like utilities, consumer staples, and healthcare tend to perform well during economic downturns due to their essential nature.
Which asset class tends to perform best during recessions?
Bonds, particularly government bonds, tend to perform well during recessions as investors seek safe-haven assets and interest rates decline.
How do stocks perform in early expansion phases?
Stocks generally experience strong performance in early expansion due to rising corporate profits, improving economic conditions, and increased investor confidence.
What role does real estate play in an investment portfolio?
Real estate provides income through rent and capital appreciation, acting as an inflation hedge and offering portfolio diversification.
Why are commodities considered a hedge against inflation?
Commodities like gold and oil retain value during inflationary periods, protecting purchasing power and stabilizing investment portfolios.
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