|Real Business Cycle Theory|
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Definition of Real Business Cycle Theory
Real Business Cycle Theory
Belief that business cycles arise from real shocks to the economy, such as technology advances and natural resource discoveries, and have little to do with monetary policy.
Money after-tax rate of return minus the inflation rate.
The analysis of principal-agent relationships, wherein one person, an agent, acts on behalf of
a method of allocating joint cost to joint products using a
An alternative model to the capital asset pricing model developed by
Key strategies a firm intends to pursue in carrying out its business plan.
Security prices sometimes move wildly above their true values.
The annual period over which budgets are prepared.
Repetitive cycles of economic expansion and recession.
Fluctuations of GDP around its long-run trend, consisting of recession, trough, expansion, and peak.
The use of capital to create more money through the addition of fixed assets or through income producing vehicles.
A business that has terminated with a loss to creditors.
a formal process for gathering and analyzing information and producing intelligence to meet decision making needs; requires information about
the process of combining information technology to create new and more effective
The risk that the cash flow of an issuer will be impaired because of adverse economic
an activity that is necessary for the operation of the business but for which a customer would not want to pay
Cash conversion cycle
The length of time between a firm's purchase of inventory and the receipt of cash
cash conversion cycle
Period between firm’s payment for materials
In general, the time between cash disbursement and cash collection. In net working capital
The length of time between a purchase of materials and collection of accounts receivable generated by the sale of the products made from the materials.
Commercial Business Loan (Credit Insurance)
An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.
The frequent, scheduled counting of a subset of all inventories,
the time between the placement of an order to
Exchange Rate, Real
The nominal exchange rate corrected for price level differences.
expectations theory of exchange rates
theory that expected spot exchange rate equals the forward rate.
An expiration cycle relates to the dates on which options on a particular security expire. A
High-Risk Small Business
Firm viewed as being particularly subject to risk from an investors perspective.
Interest Rate, Real
Nominal interest rate less expected inflation.
Internet business model
a model that involves
life cycle costing
the accumulation of costs for activities that
An approach to costing that estimates and accumulates the costs of a product/service over
Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward
Local expectations theory
A form of the pure expectations theory which suggests that the returns on bonds
manufacturing cycle efficiency (MCE)
a ratio resulting from dividing the actual production time by total lead time;
The period between the 2 latest highs or lows of the S&P 500, showing net performance of a
Market segmentation theory or preferred habitat theory
A biased expectations theory that asserts that the
Modern portfolio theory
Principles underlying the analysis and evaluation of rational portfolio choices
Net Realizable Value
Selling price of an asset less expenses of bringing the asset into a saleable state and expenses of the sale.
net realizable value approach
a method of accounting for by-products or scrap that requires that the net realizable value of these products be treated as a reduction in the cost of the primary products; primary product cost may be reduced by decreasing either
net realizable value at split-off allocation
a method of allocating joint cost to joint products that uses, as the proration base, sales value at split-off minus all costs necessary
Net realizeable value
The expected revenue to be gained from the sale of an item or
Normal backwardation theory
Holds that the futures price will be bid down to a level below the expected
The average time intervening between the acquisition of materials or services and the final
operating risk (business risk)
Risk in firm’s operating income.
The period of service for which a company compensates its employees.
pecking order theory
Firms prefer to issue debt rather than equity if internal finance is insufficient.
Political Business Cycle
A business cycle caused by policies undertaken to help a government be re-elected.
Preferred habitat theory
A biased expectations theory that believes the term structure reflects the
The time it takes to bring new and/or improved products to market.
product life cycle
a model depicting the stages through
Pure expectations theory
A theory that asserts that the forward rates exclusively represent the expected
Quantity Theory of Money
theory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ.
random walk theory
Security prices change randomly, with no predictable trends or patterns.
Measured in base year, or constant, dollars. Contrast with nominal.
Real Actions (Earnings) Management
Involves operational steps and not simply acceleration
Identifiable assets, such as buildings, equipment, patents, and trademarks, as distinguished from a
Assets used to produce goods and services.
Wealth that can be represented in financial terms, such as savings account balances, financial
Real cash flow
A cash flow is expressed in real terms if the current, or date 0, purchasing power of the cash
Real Exchange Rate
Exchange rate adjusted for relative price levels.
Real exchange rates
Exchange rates that have been adjusted for the inflation differential between two countries.
GDP expressed in base-year dollars, calculated by dividing nominal GDP by a price index.
Income expressed in base-year dollars, calculated by dividing nominal income by a price index.
Real interest rate
The rate of interest excluding the effect of inflation; that is, the rate that is earned in terms
Real Interest Rate
The rate of interest paid on an investment adjusted for inflation
real interest rate
Rate at which the purchasing power of an investment increases.
The bid and offer prices at which a dealer could do "size." Quotes in the brokers market may
real microprofit center
a center whose output has a market value
Real Money Supply
Money supply expressed in base-year dollars, calculated by dividing the money supply by a price index.
Options embedded in real assets.
Real Rate of Interest
See interest rate, real.
A real time stock or bond quote is one that states a security's most recent offer to sell or bid (buy).
real value of $1
Purchasing power–adjusted value of a dollar.
Wage expressed in base-year dollars, calculated by dividing the money wage by a price index.
Realizable Revenue A revenue transaction where assets received in exchange for goods and
services are readily convertible into known amounts of cash or claims to cash.
Realized compound yield
Yield assuming that coupon payments are invested at the going market interest
Realized Gains and Losses
Increases or decreases in the fair value of an asset or a liability that
The return that is actually earned over a given time period.
A revenue transaction where goods and services are exchanged for cash or
realized value approach
a method of accounting for byproducts or scrap that does not recognize any value for these products until they are sold; the value recognized
REIT (real estate investment trust)
real estate investment trust, which is similar to a closed-end mutual
REMIC (real estate mortgage investment conduit)
A pass-through tax entity that can hold mortgages
The frequency with which an asset is replaced by an equivalent asset.
Static theory of capital structure
theory that the firm's capital structure is determined by a trade-off of the
theory of constraints (TOC)
a method of analyzing the bottlenecks
Debt levels are chosen to balance interest tax shields against the costs of financial distress.
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