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Fundamentals and Insurance > Economic Business Cycle, Consumer Protection (Lesson 3) > Flashcards

Economic Business Cycle, Consumer Protection (Lesson 3) Flashcards

1
Q

How much should life insurance be

A

10-16 times gross pay

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2
Q

How much should disability insurance be

A

60-70% of gross pay

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3
Q

How much should should property insurance be (home and auto)

A

= FMV

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4
Q

How much should an emergency fund be

A

3 to 6 months of non discretionary expenses

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5
Q

Front end ratio is

A

28% = PITI divided by Monthly Gross Income

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6
Q

Back end ratio is

A

36% = PITI + recurring debt payments divided by monthly gross income

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7
Q

How much should Personal liability Umbrella policy be

A

$1 - 3 M in liability protection

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8
Q

Around how much should a client save for education funding for 18 years for public state, semi private university, competitive private university

A

$3000, $6000, $9000

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9
Q

At retirement an individual should have ___ times the amount of income needed annually saved

A

16 Times

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10
Q

What should the savings rate toward retirement be generally

A

10-12%

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11
Q

All clients should have the big three for legacy planning

A
  • Will
  • Durable Power of Attorney for Healthcare
  • Advanced Medical Directive
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12
Q

What are Economic Factors?

A

GDP, Inflation, Interest Rates

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13
Q

What are Social Factors?

A

Customs, Beliefs, Status Symbols

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14
Q

What are Political Factors

A

Forms of Government, Protectionism

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15
Q

What are Legal Factors

A

Antitrust Acts, Consumer Protection

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16
Q

What are Technological Factors

A

Current & New Technology

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17
Q

What are taxation Factors

A

Income, Property, Payroll, and Sales Tax

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18
Q

Impact of interest rate changes on investment returns

A

Inverse relationship

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19
Q

How is purchasing power related to interest rates

A

Inverse relationship

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20
Q

What is inflations impact on cost of goods, services, and money

A

Direct relationship

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21
Q

What is the impact on wages with a change in unemployment rates

A

Inversely related

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22
Q

What is monetary and fiscal policies impact on economic expansion/contraction

A

Direct relationship

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23
Q

Demand Curve: As price ____ demand decreases

A

Increases

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24
Q

Demand Curve: Anytime there is a change in price there is a ____ _____ the demand curve

A

Movement along

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25
Q

A shift in demand curve will happen when

A

There is an increase or decrease in:

  • Income
  • Taxes
  • Savings Rates
  • Disposable Income
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26
Q

Demand Curve: Anything that causes discretionary income to increase will shift the demand curve ___ ____

A

Up and to the right

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27
Q

Demand Curve: Anything that causes discretionary income to decrease will shit the demand curve ___ ____

A

Down and to the left

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28
Q

There is a movement along the supply curve when

A

There is a change in price

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29
Q

The supply curve will shift to the left or right because of a change in

A

Technology, Competition, Anything other than price

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30
Q

Supply Curve: Anything that causes production to improve will shift the supply curve

A

Down and to the right

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31
Q

Supply Curve: Anything that causes an increase in production costs or supply to decrease the supply curve will shift

A

Up and to the left

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32
Q

Price at which Supply equals Demand

A

Equilibrium

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33
Q

Substitutes are products

A

that serve a similar purpose

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34
Q

Complements are products

A

that are consumed jointly

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35
Q

What does price elasticity measure

A

the change in quantity demanded relative to changes in price

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36
Q

What is elastic demand

A

Quantity demanded responds significantly to changes in price

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37
Q

An elastic demand curve is

A

Almost horizontal sloping down and to the right

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38
Q

What is an inelastic demand

A

Quantity demanded changes very little to changes in price

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39
Q

An inelastic demand curve is

A

Almost vertical. Shape of an “I”

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40
Q

Business Life Cycle At Peak Inflation, Interest rates, Unemployment, and GDP (Highest/Lowest)

A

Inflation: Highest

Interest Rates: Highest

Unemployment: Lowest

GDP: Highest

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41
Q

Business Life Cycle At Trough Inflation, Interest rates, Unemployment, and GDP (Highest/Lowest)

A

Inflation: Lowest

Interest Rates: Lowest

Unemployment: Highest

GDP: Lowest

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42
Q

Business Life Cycle At Recession Inflation, Interest rates, Unemployment, and GDP (Decreasing/Increasing)

A

Inflation: Decreasing

Interest Rates: Decreasing

Unemployment: Increasing

GDP: Decreasing

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43
Q

Business Life Cycle At Expansion Inflation, Interest rates, Unemployment, and GDP (Decreasing/Increasing)

A

Inflation: Increasing

Interest Rates: Increasing

Unemployment: Decreasing

GDP: Increasing

44
Q

During Expansion investments should be in

A

short duration bonds and equities

45
Q

During Peak bonds, preferred stock, and high duration or fixed income assets should be

A

Sold

46
Q

What assets do good in the Peak?

A

Equities and hard assets such as good and real estate

47
Q

What should you do with Equities and hard assets in a Contraction/Recession? What should be invested in?

A

Equities and hard assets should be sold. Should invest in short term cash and bonds until the market settles down

48
Q

What investments will do well in a Trough?

A

High Duration bonds

49
Q

What does GDP measure

A

Amount of goods and services produced in the US regardless of ownership

50
Q

What does GNP measure

A

the amount of goods and services produced by a country’s citizens regardless of where the goods and services are produced

51
Q

How long till be characterized a recession

A

6 consecutive months (2 quarters) of declining GDP

52
Q

How long till be characterized a depression

A

18 months or six consecutive quarters

53
Q

Inflation is defined as

A

increase of prices

54
Q

What risk does inflation impact

A

Purchasing Power

55
Q

What is galloping inflation

A

Money loses value very quickly

56
Q

What is deflation

A

opposite of inflation where prices are falling

57
Q

What is disinflation

A

decline or slowdown in the rate of inflation

58
Q

What does the Consumer Price index (CPI) measure

A

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

59
Q

What does the Producer Price Index (PPI) measure

A

price changes in the wholesale and manufacturing sectors

60
Q

What are some Leading indicators that anticipate changes in the economy

A
  • Initial unemployment claims
  • Stock Prices
  • Money Supply
  • New manufacturing orders
  • New Private housing units
  • Consumer Sentiment
61
Q

What are some Coincident indicators that anticipate changes in the economy

A
  • Employees on Payroll
  • Personal Income
  • Industrial production
  • Manufacturing sales
62
Q

What are some Lagging indicators that anticipate changes in the economy

A
  • Avg. duration of unemployment
  • Change in the CPI
  • Change in labor cost per unit
  • Consumer credit to income
  • Value of outstanding loans
  • Avg. prime rate charged by banks
63
Q

Who controls the Monetary Policy

A

Federal Reserve

64
Q

The federal reserve has three main goals

A
  • Maintain long term economic growth
  • Maintain price levels supported by the economy
  • Maintain full employment
65
Q

As the reserve requirement _____ the money supply increases and interest rates ______

A
  • decreases
  • decreases
66
Q

What are the Four tools of federal reserve?

A
  • Reserve requirement
  • Discount rate
  • Open Market Operations (Buy/sell Treasuries)
  • Excess Reserves
67
Q

As discount rates decrease short term interest rates ____

A

Decrease

68
Q

Does the Federal reserve control the prime lending rate?

A

No (not part of fiscal or monetary policy)

69
Q

As the federal reserve buys Treasuries the money supply ____ and interest rates _____

A
  • Increase
  • Decrease
70
Q

An increase in the reserve requirement: Money Supply (Inc or Dec) Interest Rates (Inc or Dec) Policy (Contractionary/Expansionary)

A

Money Supply - Decrease

Interest Rates - Increase

Policy - Contractionary

71
Q

An increase in the discount rate: Money Supply (Inc or Dec) Interest Rates (Inc or Dec) Policy (Contractionary/Expansionary)

A

Money Supply - Decrease

Interest Rates - Increase

Policy - Contractionary

72
Q

Sales of Treasuries in Open Market: Money Supply (Inc or Dec) Interest Rates (Inc or Dec) Policy (Contractionary/Expansionary)

A

Money Supply - Decrease

Interest Rates - Increase

Policy - Contractionary

73
Q

An increase in the Excess reserve rate: Money Supply (Inc or Dec) Interest Rates (Inc or Dec) Policy (Contractionary/Expansionary)

A

Money Supply - Decrease

Interest Rates - Increase

Policy - Contractionary

74
Q

An Decrease in the reserve requirement: Money Supply (Inc or Dec) Interest Rates (Inc or Dec) Policy (Contractionary/Expansionary)

A

Money Supply - Increase

Interest Rates - Decrease

Policy - Expansionary

75
Q

An decrease in the discount rate: Money Supply (Inc or Dec) Interest Rates (Inc or Dec) Policy (Contractionary/Expansionary)

A

Money Supply - Increase

Interest Rates - Decrease

Policy - Expansionary

76
Q

Buying of Treasuries in Open Market: Money Supply (Inc or Dec) Interest Rates (Inc or Dec) Policy (Contractionary/Expansionary)

A

Money Supply - Increase

Interest Rates - Decrease

Policy - Expansionary

77
Q

An Decrease in the Excess reserve rate: Money Supply (Inc or Dec) Interest Rates (Inc or Dec) Policy (Contractionary/Expansionary)

A

Money Supply - Increase

Interest Rates - Decrease

Policy - Expansionary

78
Q

Who controls Fiscal Policy

A

Congress

79
Q

What are congress three goals related to fiscal policy

A
  • Maintain economic growth
  • Maintain Price stability
  • Maintain full employment
80
Q

What are congress three tools for which they can influence fiscal policy?

A
  • Taxation
  • Spending
  • Debt Management
81
Q

Normal yield curve is

A

concave sloping upward to the right

82
Q

Inverted yield curve is

A

sloping downward to the right

83
Q

Expansionary policy from both fiscal/monetary policy results in a

A

Normal yield curve

84
Q

Contractionary policy from both fiscal/monetary policy results in a

A

Inverted yield curve

85
Q

What act gives creditors ___ days to acknowledge receipt of a billing dispute and explain or correct the error within ___ days

A

Fair Credit Billing Act 30 days 90 days

86
Q

What did the Truth in Lending act do?

A
  • Lenders must disclose the total cost of financing, including the cost of any credit life insurance
  • Interest must be stated in terms of APR
  • Administered by the Federal Reserve
87
Q

What did the Credit CARD Act of 2009 do?

A
  • 45 day notice of interest rate increases
  • debt paid on time during grace period cannot be assessed interest
  • CC cannot be issued to someone under 21 unless they have a cosigner
  • Late fees are limited to $25 ($35 if payment missed in last 6 months)
88
Q

FDIC insurance applies to the amount in IRA’s if

A
  • the IRA is invested in bank deposits such as CDs.
  • Does not cover mutual funds, stocks, bonds, or annuities
89
Q

Is money held in a money market mutual fund FDIC insured?

A

No

90
Q

What debts are not discharged through chapter 7 bankruptcy?

A
  • Student and Government loans
  • 3 years of back taxes
  • Alimony and child support
  • Monies owed due to malicious acts (drunk driving, criminal fines, or embezzlement)
91
Q

What is chapter 7 bankruptcy

A

Relief through liquidation

92
Q

Are debts related to negligence discharged in Chapter 7 bankruptcy?

A

Yes

93
Q

What property is exempt from chapter 7?

A
  • Homestead
  • life insurance
  • qualified plans
94
Q

Are contributory traditional and Roth IRA’s exempt assets in a chapter 7?

A

Yes up to 1 million

95
Q

Are non spousal beneficiary IRA’s exempt from chapter 7

A

No unless a trust is named as beneficiary

96
Q

How much of qualified plans and converted IRAs is exempt in Chapter 7?

A

Unlimited as long as the IRA is marked rollover and no contributions have been made

97
Q

Bankruptcy filing may remain on the credit report up to __ years

A

10 years

98
Q

Who cannot use chapter 7 bankruptcy?

A

debtors average monthly income for their region is in excess of the threshold

99
Q

What is a chapter 11 bankruptcy?

A

relief through reorganization for business or the self employed

100
Q

What is chapter 13 bankruptcy?

A

Provides relief through adjusting debts

101
Q

What form of liability is workers compensation?

A

Absolute

102
Q

What is the maximum number of weeks to receive unemployment compensation?

A

39 weeks (26 weeks regular and 13 weeks is for periods of high unemployment)

103
Q

What does ERISA do?

A

protects retirement plans of employees

104
Q

What did the Securities Act of 1933 do?

A
  • Regulated new issue securities in the primary market
105
Q

What did the Securities Act of 1934 do?

A
  • Regulates secondary markets
  • Established the SEC
106
Q

What did the Securities Investor Protection Act of 1970 do?

A
  • Created the Securities Investor Protection Corporation (SIPC)
  • provided coverage if a broker dealer because insolvent or unauthorized trading of investor accounts
107
Q

What are the five factors of FICO

A
  • Payment history
  • Amount of debt
  • Length of credit history
  • New credit
  • Type of credit

Fundamentals and Insurance (10 decks)

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