Economic Business Cycle, Consumer Protection (L4)

Question 1

Economic Environment

Answer 1

Question 2

Demand

Answer 2

• Reflects the Quantity of a good or service that the consumers are willing to purchase
• Price INCREASES ==> Quantity Demand DECREASES
• Price DECREASES ==> Quantity Demand INCREASES
• Change in Price (“Change in Quantity Demanded”) = MOVEMENT along demand curve (NOT Shift)

Question 3

Shift in DEMAND CURVE

Answer 3

Question 4

Supply

Answer 4

• Reflects the Quantity of a good or service that businesses are willing to supply at a given price.
• Price INCREASES ==> Quantity Supply INCREASES
• Price DECREASES ==> Quantity Supply DECREASES
• Change in Price (“Change in Quantity Supplied”) = MOVEMENT along Supply curve (NOT Shift)

Question 5

Shift if SUPPLY CURVE

Answer 5

Question 6

Substitutes

Answer 6

• Products that have similar purposes
• A price change in one product changes the quantity demanded for another product
  ○ EXAMPLE ==> The price for movie tickets increases. Then the
  demand for movie rentals increases as well.

Question 7

Compliments

Answer 7

• Products that are consumed jointly
• A price change in one product changes the quantity demanded for another product
  ○ EXAMPLE ==> If razors are on sale, then the demand for razor
  blade may increase. (They are complementary products)

Question 8

Elastic Demand

Answer 8

• Quantity Demanded responds SIGNIFICANTLY to price changes.
• EXAMPLES:
  ○ Airline tickets
  ○ Movie tickets
  ○ Alcohol
  ○ LUXURY GOODS

Question 9

Inelastic Demand

Answer 9

• Quantity Demanded responded VERY LITTLE to price changes.
• EXAMPLES:
  ○ Milk
  ○ Gas

Question 10

Business Life Cycle (pg. 67)

Answer 10

Question 11

GDP vs. GNP

Answer 11

• Gross Domestic Product (GDP)
  ○ Measures the amount of goods and services produced in the
  US, regardless of ownership
• Gross National Product (GNP)
  ○ Measures the amount of goods and services produced by the
  country’s citizens, regardless of where the goods/services are
  produced.

Question 12

Inflation

Answer 12

Inflation = INCREASE IN PRICES

LOSS of purchasing power

Question 13

Moderate Inflation

Answer 13

Prices are SLOWLY INCREASING. (1-2%)

Question 14

Galloping Inflation

Answer 14

Money loses value VERY QUICKLY

Question 15

Deflation

Answer 15

OPPOSITE of inflation –> prices are falling

Question 16

Disinflation

Answer 16

Decline or slowdown in the rate of inflation

Question 17

Measures of Inflation

Answer 17

• Consumer Price Index (CPI)
  ○ Measures the price change in a basket of goods and services
  at the RETAIL LEVEL.
  ○ Historically 2-3%
• Producer Price Index (PPI)
  ○ Measures price changes in the WHOLESALE and
  MANUFACTURING sectors

Question 18

Economic Indicators

Answer 18

Question 19

Monetary Policy (FED)

Answer 19

Question 20

4 tools used to influence the money supply and interest rates (pg. 72)

Answer 20

Question 21

Fiscal Policy (Congress)

Answer 21

Question 22

3 tools used to influence fiscal policy

Answer 22

Question 23

Yield Curve

Answer 23

• A diagram that plots the current interest rates against the term to maturity for similar securities, such as TREASURIES
• Normal Yield Curve = concave, sloping UPWARD to the right
• Inverted Yield Curve = convex, sloping DOWNWARD to the right
• Fiscal and Monetary Policy will help determine the shape
  ○ EXPANSION (Ease) –> Normal
  ○ CONTRACTION (Tight) –> Inverted

Question 24

Consumer Protection Laws

Answer 24

• Protect “weak” consumers from powerful corporations
• Protect honest businesses from less-than-honest businesses
• FEDERAL TRADE COMMISSION
  ○ Protects both consumers and businesses

Question 25

Fair Credit Reporting

Answer 25

• If a consumer is REFUSED credit or employment based upon information contained in a credit report, the consumer must be provided with the information in the report.
• 3 main credit bureaus:
  ○ Equifax
  ○ Experian
  ○ Transunion
• Consumers have the right to one free credit report ONCE A YEAR from each of the three bureaus

Question 26

Fair Debt Collection Act

Answer 26

○ Collection telephone called are limited to 8AM-9PM

○ Collectors must contact your attorney if you have an attorney

○ Collection calls are NOT PERMITTED at work if your ER forbids such calls

Question 27

Fair Credit Billing Act

Answer 27

○ Gives a creditor 30 days to acknowledge receipt of billing dispute and explain or correct the error within 90 days

○ A consumer’s liability for a lost or stolen credit card is limited to $50 OR the actual amount charged on the card, WHICHEVER IS LESS

Question 28

Truth in Lending Act

Answer 28

○ Lenders must disclose the total cost of financing, INCLUDING the cost of any credit life insurance

○ Interest must be stated in terms of APR

○ Truth in Lending Act is administered by the FED

Question 29

Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act)

Answer 29

○ Card companies must give cardholders 45 days’ notice of any interest rates increases

○ Card companies CANNOT charge interest on debt that is paid on time during the grace period

○ A credit card CANNOT be issued to someone under age 21 UNLESS they have a co-signer who is over 21

○ Late fees are generally LIMITED to $25 ($35 if a payment was missed in the last 6 months)

Question 30

FDIC Insured

Answer 30

Question 31

Bankruptcy Laws

Answer 31

Chapter 7 - provides relief through liquidation

Chapter 11

Chapter 13

Question 32

Chapter 7 - provides relief through liquidation

Answer 32

• Debts that are NOT discharged
  ○ 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
  ○ Debts related to fraud (negligence = discharged)
• Exempt property:
  ○ Homestead
  ○ Life insurance
  ○ Qualified plan
• ** Exempt Assets
  ○ IRAs, up to $1M as indexed every three years.
  (Inherited NON-Spousal Beneficiary IRA = NO bankruptcy
  protection, UNLESS trust is named)

Question 33

Chapter 11

Answer 33

Provides relief through reorganization for business or the self-employed

Question 34

Chapter 13

Answer 34

Provides relief through adjusting debts

Question 35

Worker Protection Laws

Answer 35

• Workers’ compensation
  ○ An absolute form of liability
  ○ Regardless of fault, if injured at work, the EE will collect
  benefits
• Unemployed Compensation
  ○ Provides moderate income replacement, for specified period of time, if an employee loses his job
  ○ Insurance premiums are funded by tax on ERs
  ○ Maximum number of weeks to receive unemployment is 29
  with regular benefits lasting up to 26 weeks
  ○ Additional 13 weeks for periods of high unemployment
• Social Security
  ○ Provides OASDI (Old Age, Survivor and Disability Beliefs)
• ERISA
  ○ Protects retirement plans for EEs

Question 36

Investor Protection Laws

Answer 36

• Securities Act of 1933
  ○ Regulates NEW issues of securities in the PRIMARY MARKET
  ○ NEW Issues = IPO
• Securities Act of 1934
  ○ Regulates SECONDAY MARKET
  ○ Established the SEC, whose primary function is to regulate the
  securities market
• Securities Investor Protection Act of 1970
  ○ Created SIPC (Securities Investor Protection Corporation)
  Provided coverage if a BD becomes INSOLVENT or if there is
  unauthorized trading in an investors account

Question 37

Debt Management

Answer 37

• FICO (Fair Isaac Corporation)
  ○ Commonly used by lenders to assess potential borrowers CREDIT RISK
  ○ Score Range from 350 - 850
  § Goal is 790 or better
  ○ 5 factors the affect credit scores:
  § Payment history (LARGEST FACTORS)
  § Amount of debt
  § Length of credit history
  § New credit
  § Type of credit