Economic Business Cycle, Consumer Protection (L4) Flashcards
Economic Environment
Demand
- 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)
Shift in DEMAND CURVE
Supply
- 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)
Shift if SUPPLY CURVE
Substitutes
- 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.
Compliments
- 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)
Elastic Demand
- Quantity Demanded responds SIGNIFICANTLY to price changes.
- EXAMPLES:
○ Airline tickets
○ Movie tickets
○ Alcohol
○ LUXURY GOODS
Inelastic Demand
- Quantity Demanded responded VERY LITTLE to price changes.
- EXAMPLES:
○ Milk
○ Gas
Business Life Cycle (pg. 67)
GDP vs. GNP
- 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.
Inflation
Inflation = INCREASE IN PRICES
LOSS of purchasing power
Moderate Inflation
Prices are SLOWLY INCREASING. (1-2%)
Galloping Inflation
Money loses value VERY QUICKLY
Deflation
OPPOSITE of inflation –> prices are falling
Disinflation
Decline or slowdown in the rate of inflation
Measures of Inflation
- 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
Economic Indicators
Monetary Policy (FED)
4 tools used to influence the money supply and interest rates (pg. 72)
Fiscal Policy (Congress)
3 tools used to influence fiscal policy
Yield Curve
- 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
Consumer Protection Laws
- Protect “weak” consumers from powerful corporations
- Protect honest businesses from less-than-honest businesses
- FEDERAL TRADE COMMISSION
○ Protects both consumers and businesses
Fair Credit Reporting
- 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
Fair Debt Collection Act
○ 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
Fair Credit Billing Act
○ 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
Truth in Lending Act
○ 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
Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act)
○ 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)
FDIC Insured
Bankruptcy Laws
Chapter 7 - provides relief through liquidation
Chapter 11
Chapter 13
Chapter 7 - provides relief through liquidation
- 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)
Chapter 11
Provides relief through reorganization for business or the self-employed
Chapter 13
Provides relief through adjusting debts
Worker Protection Laws
- 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
Investor Protection Laws
- 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
Debt Management
- 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
