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My CFP Flashcards > economic business cycle, consumer protection > Flashcards

economic business cycle, consumer protection Flashcards

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1
Q

when interest rates rise… investment returns…

A

returns decrease

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2
Q

when interest rates rise… purchasing power…

A

purchasing power decreases

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3
Q

when tax rates rise… there is a redistribution of wealth…

A

from the higher tax brackets to the lower tax brackets

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4
Q

as inflation increases… the cost of goods…

A

also increases

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5
Q

as unemployment decreases…

A

wage rates (wages paid to employees) increases because firms are competing for workers

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6
Q

when monetary and fiscal policy take on a loosening policy… that leads to

A

economic expansion

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7
Q

when monetary and fiscal policy take on a tightening policy… that leads to

A

economic slowdown

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8
Q

demand reflects…

A

the quantity of a good or service that consumers are willing to purchase

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9
Q

as price increases.. demand

A

decreases

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10
Q

as price decreases… deman

A

increases

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11
Q

supply reflects…

A

the quantity of a good or service that businesses are willing to supply at a given price

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12
Q

the higher the price, the ___ suppliers are willing to supply

A

more

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13
Q

the lower the price, the ___ suppliers are willing to supply

A

less

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14
Q

the demand curve will shift due to an increase or decrease in…

A

income, taxes, savings rate, and disposable income

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15
Q

anything that causes discretionary income to increase will shift the demand curve..

A

up and to the right

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16
Q

anything that causes discretionary income to decrease will shift the demand curve…

A

down and to the left

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17
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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18
Q

anything that causes production to improve will shift the supply curve…

A

down and to the right

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19
Q

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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20
Q

equilibrium is the price…

A

at which the quantity demanded equals the quantity supplied

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21
Q

substitutes are…

A

products that serve a similar purpose

a price change in one product changes the quantity demanded for another product

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22
Q

complements are…

A

products that are consumed jointly

a price change in one product changes the quantity demanded for another product

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23
Q

price elasticity measures…

A

the change in quantity demanded, relative to changes in price

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24
Q

elastic demand

A

quantity demanded responds significantly to changes in price

ex. airline tickets, movie tickets, alcohol, luxury goods

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

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25
Q

inelastic demand

A

quantity demanded changes very little to changes in price

life’s necessities respond very little to changes in price
ex. milk and gas

an inelastic demand curve is almost vertical, sloping down and to the right

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26
Q

what is inflation, interest rates, unemployment and GDP doing at THE PEAK of the business cycle?

A

Inflation = highest
Interest Rates = highest
Unemployment = lowest
GDP = highest

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27
Q

what is inflation, interest rates, unemployment and GDP doing at A RECESSION of the business cycle?

A

Inflation = decreasing
Interest Rates = decreasing
Unemployment = increasing
GDP = decreasing

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28
Q

what is inflation, interest rates, unemployment and GDP doing at A TROUGH of the business cycle?

A

Inflation = lowest
Interest Rates = lowest
Unemployment = highest
GDP = lowest

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29
Q

what is inflation, interest rates, unemployment and GDP doing at A EXPANSION of the business cycle?

A

Inflation = increasing
Interest Rates = increasing
Unemployment = decreasing
GDP = increasing

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30
Q

Gross Domestic Product measures… (GDP)

A

the amount of goods and services produced IN THE US regardless of ownership

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31
Q

Gross National Product measures… (GNP)

A

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

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32
Q

definition of a recession

A

consists of 6 consecutive months (or two quarters) of declining GDP

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33
Q

definition of a depression

A

a recession becomes a depression if the recession lasts for 18 months or six consecutive quarters

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34
Q

definition of inflation

A

an increase in prices

risk of inflation is the loss of purchasing power

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35
Q

formula to measure inflation

A

inflation = [(price level in year x) - (price level in year y)] / price level in year y

36
Q

definition of deflation

A

opposite of inflation
aka prices are falling

37
Q

definition of disinflation

A

a decline or slowdown in the rate of inflation

38
Q

Consumer Price Index (CPI) measures

A

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

39
Q

Producer Price Index (PPI) measures

A

price changes in the wholesale and manufacturing sectors

40
Q

what are the three different types of economic indicators?

A

leading, lagging, and coincident

41
Q

what are leading indicators and what are some examples?

A

anticipate changes in the economy

ex: initial unemployment claims
stock prices
money supply
new manufacturing orders
new private housing units
consumer sentiment

42
Q

what are coincident indicators and what are some examples?

A

change along with changes in the business cycle

ex: employees on payroll
personal income
industrial production
manufacturing sales

43
Q

what are lagging indicators and what are some examples?

A

summarize or confirm past performance

ex: average duration of unemployment
change in the CPI
change in labor cost per unit
consumer credit to income
value of outstanding loans
average prime rate charged by banks

44
Q

what is Monetary Policy?

A

the policy and means by which the Federal Reserve controls the money supply and influences interest rates

45
Q

what are the 3 main goals of the Federal Reserve?

A

maintain long term economic growth

maintain price levels supported by the economy

maintain full employment

46
Q

easing monetary policy means

A

through increasing money supply and decreasing interest rates

47
Q

tightening monetary policy means

A

decreasing money supply and increasing interest rates

48
Q

what are the four tools that the Federal Reserve uses to influence the money supply and interest rates?

A

Reserve Requirement
Discount Rate
Open Market Operations
Excess Reserves

49
Q

what is the reserve requirement?

A

the percentage of deposits a bank must maintain in cash

50
Q

what happens when the reserve requirement increases?

A

there is less cash available to lend, therefore the money supply decreases and interest rate increase

51
Q

what happens when the reserve requirement decreases?

A

there is more cash available to lend, therefore the money supply increases and interest rates decrease

52
Q

what is the discount rate?

A

the overnight interest rate at which member banks can borrow from the Federal Reserve to meet their reserve requirements

53
Q

as the discount rate increases, short term interest rates…

A

increase

54
Q

as the discount rate decreases, short term interest rates…

A

decrease

55
Q

what is meant by open market operations?

A

as the federal reserve buys or sells government securities, the money supply is influenced and places pressure on interest rates

56
Q

as the federal reserve buys treasuries…

A

money supply increases and interest rates decrease

57
Q

as the federal reserve sells treasuries…

A

money supply decreases and interest rates increase

58
Q

what are the excess reserves?

A

monies that a bank holds at the Federal Reserve in excess of the required reserve amount

59
Q

an increase in the reserve requirement causes a ____ policy

A

contractionary

60
Q

a decrease in the reserve requirement causes a ____ policy

A

expansionary

61
Q

an increase in the discount rate causes a ______ policy

A

contractionary

62
Q

a decrease in the discount rate causes a _____ policy

A

expansionary

63
Q

when there is selling of treasuries in the open market, it is a ______ policy

A

contractionary

64
Q

when there is buying of treasuries in the open market, it is a _____ policy

A

expansionary

65
Q

when there is an increase in the excess reserve rate, it is a _____ policy

A

contractionary

66
Q

when there is a decrease in the excess reserve rate, it is a _____ policy

A

expansionary

67
Q

what is fiscal policy?

A

the policy and means by which Congress controls spending and taxation, which influences the money supply and interest rates

68
Q

what are Congress’s 3 goals when it comes to fiscal policy?

A

maintain economic growth

maintain price stability

maintain full employment

69
Q

what are the 3 tools that Congress uses for fiscal policy?

A

taxation
spending
debt management

70
Q

increasing tax rates will…

A

reduce money available for spending, thereby increasing interest rates

71
Q

decreasing tax rates will….

A

increase money available for spending, thereby decreasing interest rates

72
Q

when Congress increases government spending…

A

it increases the money supply and thereby decreases interest rates

73
Q

when congress cuts spending…

A

it increases interest rates

74
Q

what is deficit spending?

A

when Congress spends more than tax revenues that are collected

75
Q

as Congress borrows more, the amount of dollars available to be lent decreases AND

A

it places increasing pressure on interest rates

76
Q

Expansionary policy from both fiscal and monetary policy results in a…

A

normal yield curve

77
Q

Contractionary policy from both fiscal and monetary policy results in a….

A

inverted yield curve

78
Q

FDIC Insurance has a total of how much in coverage?

A

Total of 250k of insurance per type of account ownership

account types are: individual, joint, trust, self directed retirement accounts

79
Q

Bankruptcy Law Chapter 7

A

provides relief through liquidation

80
Q

Bankruptcy Law Chapter 11

A

provides relief through reorganization for businesses or the self employed

81
Q

Bankruptcy Law Chapter 13

A

provides relief through adjusting debts

82
Q

what are debts that are not discharged through Chapter 7?

A

student and government loans
3 years of back taxes
alimony and child support
monies owed due to malicious acts, drunk driving, criminal fines and penalties, or embezzlement
fraud

83
Q

what assets are exempt from creditors?

A

homestead, life insurance, qualified plans

84
Q

Securities Act of 1933

A

regulates new issues of securities in the primary market

85
Q

Securities Act of 1934

A

regulates secondary markets
established the SEC (whos primary function is to regulate the securities market)

86
Q

Securities Investor Protection Act of 1970

A

created SIPC
provides coverage if a broker dealer becomes insolvent or if there is unauthorized trading in an investor’s account

87
Q

what factors influence credit scores?

A

payment history
amount of debt
length of credit history
new credit
type of credit

My CFP Flashcards (18 decks)

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