Question

First, provide your own definition for macroeconomics. Second, choose a specific investment vehicle (stocks, bonds, mutual funds, commodities) and analyze how it performs in different economic environments. The different economic environments to analyze are either strong or weak. For example, stocks do well historically when interest rates are higher and the economy in growing.

Answer 1

Macroeconomics involves the study of aggregate factors such as employment, inflation and gross domestic product and evaluating how they influence the economy as whole. Macroeconomics is a branch of the economics that studies how the aggregate economy behaves. In Macroeconomics, a variety of economy wide phenomena is thoroughly explained such as inflation, price levels, rate of growth, national income, gross domestic product (GDP) and changes in unemployment

The measures and topic of the study most commonly associated with macroeconomics include gross domestic product, the rate of the employment, the phase of the business cycle, the rate of inflation, the money supply, the level of Government debt and the short term and long-term effects of trends and changes in these measures. Macroeconomics also studies the interrelationships among the factors that shape the economy.

Macroeconomics confers considerable importance to the Role expectations play in an economy. It studies the effect of the anticipated and unanticipated changes, as well as the impact caused when the changes are expected to be temporary versus when they are expected to be temporary versus when they are expected to be permanent.

The stock market one of the most important components of a free market economy, as it provides companies with access to capital in exchange for giving investors a part of ownership in the company, the share market makes possible to its investors to grow their small initial sums of money into large ones and to become wealthy without taking the risk of starting a business as their own or making the sacrifices that often accompany a high playing career.

Through the efficient market hypothesis as a whole theorizes that the market is generally efficient, the theory is offered in two different versions: weak and strong.

The weak form suggest that today’s stock prices reflect all the data of past prices and that no form of technical analysis can be effectively utilized to avoid investors in making trading decisions. Advocates for the weak form efficiency theory believe that if fundamental analysis is used undervalued and overvalued stocks can be determined, and investors can research companies financial statement to increase their chances of making higher than market average profits.

The strong form version of the efficient market hypothesis states that all information both the information available to the public and any information not public known is completely accounted for in current stock prices and there is no type of information that can give an investor an advantage on the market. Advocates for this degree of the theory suggest that investors cannot make returns on investments that exceed normal market returns, regardless of information retrieved or research conducted.

Through the efficient market hypothesis is an important pillar of modern financial theories and has a large backing primarily in academic community it also has a large number of critics. The theory remains controversial and investors continue attempting to outperform market averages with their stock selections.

Interest rates effect the economy by influencing stock and bond interest rates consumer and business spending, inflation, and recessions. However, it is important to understand that there is generally a 12-month lag in the economy meaning that it will take at least 12 months for the effects of any increase or decrease in interest rates to be left. By adjusting the federal funds rate, the fed helps keep the economy in balance over the long term. Understanding the relationship between interest rates and the U.S economy will allow us to understand the big picture and make better investment decisions.