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CFP Exam > CFP Economic Cycles > Flashcards

CFP Economic Cycles Flashcards

1
Q

As interest rates increase, what happens to stock prices and bond prices?

A

Decrease

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2
Q

Investment returns are ____ related to changes in interest rates

A

Investment returns are inversely related to changes in interest rates

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3
Q

As interest rates DECREASE what happens to bond prices?

A

As interest rates DECREASE, bond prices will INCREASE

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4
Q

Purchasing power is _______ related to interest rates

A

Purchasing power is INVERSELY related to interest rates

As interest rates go up, you can buy less with your money (inflation)

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5
Q

The cost of money is measured by

A

Interest rates

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6
Q

Monetary Policy / 3 goals

A

Federal Reserve (interest rates)

3 goals:
l-t economic growth
maintain price levels
full employment

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7
Q

Fiscal Policy

A

Congress

Stimulus
Debt Management

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8
Q

What things cause a shift in the Demand Curve up and to the right?

A

Increased Income
Goverment lowers Taxes
Lower Savings Rate
More Disposable Income

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9
Q

What things cause a shift in the Supply Curve down and to the right?

A

Technology improves efficiency
Competition
Anything other than price

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10
Q

What things cause a shift in the Supply Curve up and to the left?

A

Less firms in the marketplace
Goods used in the manufacturing process increase

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11
Q

What is the definition of a substitute?

A

Products that serve a similar purpose

Movie rentals / Movie tickets

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12
Q

What is the definition of a complement?

A

Complements are products that are consumed jointly

Razors / Razor blades / Shaving cream

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13
Q

Examples of Elastic Demand

A

Sensitive to price

-Airline tickets
-Alcohol
-Luxury goods

An elastic demand curve is almost horizontal, sloping down and to the right

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14
Q

Examples of Inelastic Demand

A

Not sensitive to price (doesn’t snap)

Toilet paper
Gasoline
Milk

An INelastic demand curve is almost vertical, sloping down and to the right. Remember the “I” in inelastic to remember the shape of the inelastic demand curve

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15
Q

What are the phases of the Business Life Cycle?

A

Expansion
Peak
Recession/Contraction
Trough
Back to Expansion

Average time = 60 months

Fundamental p.67 for key chart on variables during each cycle

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16
Q

Gross Domestic Product

A

Amount of good and services produced in the US, regardless of ownership (ex: Mexican beer made in Texas)

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17
Q

Gross National Product

A

Measures the amount of goods and services produced by a country’s citizens, regardless of where the goods and services are produced
(ex: Ford production in Mexico is included in GNP, not GDP)

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18
Q

Definition of a recession

A

6 consecutive months (2 quarters) of declining GDP

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19
Q

Definition of a depression

A

If recession lasts for 18 months or 6 consecutive quarters

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20
Q

Inflation formula

A

Price (year x) - Price (previous year)
____________________________________
Price (previous year)

21
Q

Moderate inflation

22
Q

Definition of deflation

A

Opposite of inflation.

Prices are falling.

Individuals hold cash because cash becomes more valuable.

23
Q

Definition of DISINFLATIONS

A

A decline or slowdown in the rate of inflation

24
Q

CPI
Consumer Price Index measures

A

CPI measures the price change in a basket of goods and services at the retail level

25
PPI Producer Price Index
PPI measures price changes in the wholesale and manufacturing sectors
26
Leading Economic Indicators
Initial Unemployment Claims Stock prices Money Supply M2 New manufacturing orders New private housing units Consumer sentiment
27
Lagging Indicators
Average duration of unemployment Change in CPI Change in labor cost per unit Consumer credit to income Value of outstanding loans Avg prime rate charged by banks
28
How does the Fed ease Monetary Policy?
Increase Money supply Decrease interest rates Decrease discount rate Purchase securities through open market operations
29
How does the Fed tighten Monetary Policy?
Decrease money supply Increase interest rates Increase the discount rate Sell securities through open market operations (putting notes on the market, taking cash OFF the market)
30
What is the Discount Rate?
Overnight interest rate at which member banks can borrow from the Fed to meet reserve requiements
31
Normal yield curve
Concave sloping upward and to the right
32
Inverted yield curve
Convex, sloping downward and to the right
33
Fair Credit Reporting Act
If a consumer is refused credit, must be provided with the report. Rights to free credit report 1x per year.
34
Fair Debt Collection Act
Calls 8am-9pm Must contact attorney
35
Fair Credit Billing Act
Gives a creditor 30 days to acknowledge receipt of a billing dispute Must explain/correct within 90 days Consumer liability for stolen card is limited to $50
36
Truth in Lending Act
Lenders must disclose cost of financing Interest must be stated in terms of APR Administered by the Federal Reserve
37
Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act)
45 days notice of interest rate increases No interest on debt pd within grace period 21+ (or with co-signer) Late fees limited to $24 /$35(6 months)
38
FDIC Insurance does not cover
mutual funds, stocks, bonds, annuities deposits outside US
39
Chapter 7 bankruptcy, items not discharged
Not discharged: Student loans 3 years of back taxes Alimony Child support Monies owed due to malicious acts
40
Chapter 7 bankruptcy, exempt property
Homestead Life insurance Qualified plans along with converted IRAs have an unlimited exemption Traditional and Roth IRAs up to $1M $1,512,350 (2022-2025)
41
How long does Chapter 7 bankruptcy remain on your credit report?
Up to 10 years
42
Chapter 11 bankruptcy provide relief through
reorganization for businesses or for the self-employed
43
Chapter 13 bankruptcy provides relief through
adjusting debts
44
Workers compensation is a form of limited liability or absolute liability?
Absolute
45
Maximum number of weeks to receive unemployment is
39 weeks with regular benefits last up to 26 weeks additional 13 weeks is during periods of high unemployment
46
Securities Act of 1933
Regulates new issues of securities (IPOs)
47
Securities Act of 1934
Regulates secondary market
48
Securities Investor Protection Act of 1970
Created Securities Investor Protection Corporation (SIPC) Provides coverage if a broker-dealer becomes insolvent
49
What are the 5 factors that affect credit scores?
Payment history Amount of debt Length of credit history New credit Type of credit

CFP Exam (23 decks)

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