Course 1: General Financial Planning Flashcards
What is the law of supply?
Price goes up, and supply goes up
Price goes down and supply goes down
What is the law of demand?
Price goes up, demand goes down
Price goes down, demand goes up
What is equilibrium price?
Where the supply and demand curve intersect
What is price elasticity?
What does it mean when something is inelastic vs elastic
How consumers cope with change in price
Inelastic = even a change in price won’t change demand (necessity)
Elastic = change in price will change demand (luxury, not necessity)
What is gross domestic product? GDP
Sum total of consumption, corporate capital investments, net exports, and government spending
What is fiscal policy?
Fiscal policy refers to the government’s tax and spending policies and how these interventions influence the economy.
What is monetary policy?
Monetary policy controls the supply of money and influences bank lending and interest rates
What is transaction money? (M1)
Transaction money is the value of all currency held outside of bank vaults and the value of all demand deposits, traveler’s checks, and other checkable deposits.
What is broad money?
Broad money is M1 plus savings accounts or money market accounts.
What is the Fed made up of?
The Fed is made up of 12 regional reserve banks throughout the country
How does the Fed manipulate money supply
Manipulating the Reserve Requirements.
Manipulating the Discount Rate.
Engaging in open market operations.
What is the required reserve ratio?
The reserve requirement is the amount of total deposits that the Fed requires its members to keep with the Federal Reserve at the end of the business day.
What is the discount rate?
The discount rate is the interest rate banks pay the Fed.
If the Fed wants to stimulate the market, will it buy or sell securities?
When the Fed wants to use open market operations to increase the money supply, it will buy US Treasury and government securities from security dealers.
What does the GDP exclude?
Imports, to avoid the impact of exchange rates and trade policies.
The effects of inflation.
Intermediate goods (goods that could be counted, both when they are purchased as inputs and when they are sold as final products).
All transactions in which money or goods change hands but in which no new goods and services are produced.
The income of U.S. citizens working abroad.
Profits earned by U.S. companies in foreign countries.
