Fundamentals Lesson 4 Flashcards
1
Q
Monetary & Fiscal Policy
Expansion is ____?
Contraction is ____?
A
Expansion: Loosening
Contraction: Tightening/Slow Down
2
Q
Shift in Demand Curve due to:
A
Income
Taxes
Savings Rate
Disposable Income
3
Q
Shift in Supply Curve due to:
A
Changes in technology
Competition
Anything other than price
4
Q
Price at which quantity demanded equals quantity suppliers is:
A
Equilibrium
5
Q
Elastic demand:
A
Responds significantly to changes in price
Almost horizontal
6
Q
Inelastic demand:
A
Responds little to change in price
Almost vertical
7
Q
Business Life Cycle: Peak: Recession: Trough: Expansion:
A
Peak: inflation, interest rates, GDP - highest / unemployment - lowest
Recession: inflation, interest rates, GDP - decreasing / unemployment - increasing
Trough: inflation, interest rates, GDP - lowest / unemployment - highest
Expansion: inflation, interest rates, GDP - increasing / unemployment - decreasing
8
Q
Invest in what during: Expansion: Peak: Contraction/Recession: Trough:
A
Expansion: short-duration bonds & equities
Peak: equities/hard assets (gold & real estate)
Recession: short-term cash & bonds until market settles
Trough: high-duration bonds, stock purchases late in cycle
9
Q
Consumer durables & capital goods are ____ in nature & fluctuate ____ with the business cycle.
A
Cyclical
Directly
10
Q
Example Exam Question: During recession, which is true? 1. Supply of goods & services decreasing 2. Interest rates decreasing 3. Unemployment decreasing 4. Inflation decreasing
A. 1,2,3 B. 1,3 C. 1,2,3,4 D. 1,2,4 E. 1,2
A
D
11
Q
GDP vs GNP
A
Gross Domestic Product: produced in US regardless of ownership
Gross National Product: produced by country’s citizens regardless of where
12
Q
Recession: __ consecutive months of declining GDP
Depression: __ consecutive months of recession
A
6
18
13
Q
Inflation formula:
A
Inflation = (price levelx - price levelx-1) / price levelx-1
14
Q
Moderate inflation would be __-__% per year
A
1-2%
15
Q
Galloping inflation is when money loses value _____
A
Very quickly
16
Q
Deflation:
A
Opposite of inflation; prefer to hold cash
17
Q
Disinflation:
A
Decline or slowdown in rate of inflation
18
Q
Consumer Price Index (CPI) measures:
A
Price change in basket of goods & services at retail level
Applicable to consumer purchases (2-3%)
19
Q
Producer Price Index (PPI) measures:
A
Price changes in wholesale & manufacturing sectors
20
Q
Economic indicators:
Leading:
Coincident:
Lagging:
A
Leading: anticipate changes
Coincident: change along with changes in business cycle
Lagging: summarize or confirm past performance
21
Q
Leading Indicator Examples
A
Initial unemployment claims Stock prices Money supple New manufacturing orders New private housing units Consumer sentiment
22
Q
Coincident Indicator Examples
A
Employees on payroll
Personal income
Industrial production
Manufacturing sales
23
Q
Lagging Indicator Examples:
A
Average duration of unemployment Change in CPI Change in labor cost per unit Consumer credit to income Value of outstanding loans Average price rate charged by banks
24
Q
Monetary Policy:
Controlled by ____?
A
Federal Reserve - they control money supply & influence interest rates
25
3 Main Goals of the Federal Reserve:
1. Maintain long term economic growth
2. Maintain price levels supported by the economy
3. Maintain full employment
26
Ease Monetary Policy (_____ money supply & _____ interest rates)
Increase money supply & Decrease interest rates
27
Tighten Monetary Policy (_____ money supply & _____ interest rates)
Decrease money supply & Increase interest rates
28
4 Tools Federal Reserve Can Use:
1. Reserve Requirement
2. Discount Rate
3. Open Market Operations
4. Excess Reserves
29
Reserve Requirement:
| As RR increases, there’s ____ cash available to lend. Money supply ____ & interest rates ____?
Less
Decreases
Increase
30
Reserve Requirement:
| As RR decreases, there’s ____ cash available to lend. Money supply ____ & interest rates ____?
More
Increases
Decrease
31
Discount Rate:
Overnight interest rate banks can borrow from Fed at to meet RR.
32
Discount Rate:
| As DR decreases, short term interest rates ____?
Decrease
33
Discount Rate:
| As DR increases, short term interest rates ____?
Increase
34
The Federal Reserve does NOT control the prime lending rate.
DR is banks borrowing from Fed.
| Fed Funds Rate is banks from banks.
35
Open Market Operations:
As Fed buys/sells government securities, money supply is influence & places pressure on interest rates
36
Open Market Operations:
| As Fed buys Treasuries, money supply ____ & interest rates ____?
Money supply increases
| Interest rates decrease
37
Open Market Operations:
| As Fed sells Treasuries, money supply ____ & interest rates ____?
Money supply decreases
| Interest rates increase
38
Excess Reserves:
Monies bank holds at Federal Reserve in excess of RR
39
Expansionary or Contractionary: Increase in RR, Increase in DR, Sales of Treasuries, Increase in Excess RR
Contractionary (Tighten)
| Money supply decreases & interest rates increase
40
Expansionary or Contractionary: Decrease in RR, Decrease in DR, Buying of Treasuries, Decrease in Excess RR
Expansionary (Loosen)
| Money supply increases & interest rates decrease
41
Fiscal Policy:
| Controlled by ____?
Congress
42
Congress controls spending & taxation which influences?
Money supply & Interest rates
43
3 Main Goals of Fiscal Policy:
1. Maintain economic growth
2. Maintain price stability
3. Maintain full employment
44
3 Tools of Fiscal Policy:
1. Taxation
2. Spending
3. Debt Management
45
Taxation:
| Increasing tax rates ____ money available for spending which ____ interest rates
Decreases money available
| Increases interest rates
46
Taxation:
| Decreasing tax rates ____ money available for spending which ____ interest rates
Increases money available
| Decreases interest rates
47
Spending:
| Increasing government spending ____ money supply & ____ interest rates
Increases money supply
| Decreases interest rates
48
Spending:
| Decreasing government spending ____ money supply & ____ interest rates
Decreases money supply
| Increases interest rates
49
Debt Management:
| Deficit spending:
Deficit spending is when Congress spends more than tax revenues that are collected. Congress must borrow to continue spendjng
50
Debt Management:
| As Congress borrows more to continue spending, money supply ____ & interest rates ____?
Money supply decreases
| Interest rates increase
51
Debt Management:
| As Congress collects more tax revenue to fund spending, money supply ____ & interest rates ____?
Money supply increases
| Interest rates decrease
52
Example Exam Question:
Which of the following is a fiscal policy used by Congress that influences the money supply & interest rates?
A. Prime lending rate
B. Open market operations
C. Discount rate
D. Debt management
D
53
Foreign investors also influence money supply & interest rates.
Foreign investors selling dollar dominated assets will ____ money supply & ____ interest rates?
Decrease money supply
| Increase interest rates
54
Foreign investors buying dollar dominated assets will ____ money supply & ____ interest rates?
Increase money supply
| Decrease interest rates
55
Yield curve:
Plots:
Normal is:
Inverted is:
Plots current interest rates against term to maturity for similar securities
Normal is concave
Inverted is convex
56
Expansionary policy typically results in a ____ yield curve?
Normal
57
Contractionary policy typically results in a ____ yield curve?
Inverted yield curve
58
Consumer Protection Laws:
Protects:
Who protects?
Protects consumers from corporations
Protects honest business from less than honest business
Federal Trade Commission Protects
59
Fair Credit Reporting Act:
| If refused credit/employment based on information in credit report:
Consumer must be provided with the information in the report
60
Credit Bureaus:
Experian, Equifax, Transunion
| Can receive 1 free from each every year
61
Fair Debt Collection Act:
Collection calls are limited to ____-____?
Collectors must contact?
Permitted at work?
8:00am-9:00pm
Attorney if you have one
Not if employer forbids
62
Fair Credit Billing Act:
| Gives creditor ___ days to acknowledge billing dispute & explain/correct error within ___ days?
30 to acknowledge
| 90 to correct
63
Fair Credit Billing Act:
| Consumer’s liability for lost-stollen credit card is limited to $___?
$50 per card
64
Truth in Lending Act:
Lenders must disclose:
Interest must be stated in terms of:
Administer by:
Must disclose total cost of financing including cost of credit life insurance
Interest stated in APR
Administered by Federal Reserve
65
```
Example Exam Question:
Client had 5 credit cards stolen. Following had occurred:
Discover: $350
Mastercard: $100
Visa: $425
Sears: $25
Marshall’s: $685
How much is client’s expected liability?
```
A. $50
B. $225
C. $250
D. $1235
B
66
Credit CARD Act of 2009:
Card companies must give ___ days notice of interest rate increases
___ charge interest on debt paid during grace period
___ be issued to someone under 21
Late fees limited to $__ ($__ if payment missed in last 6 months)
45 days notice
Cannot charge interest
Cannot be issued to under 21 unless co-signer
Limited to $25/$35 if payment missed
67
FDIC Insurance:
$____ of insurance per account type ownership
4 Ownership account types:
$250k
| Individual, Joint, Trust, Self-Directed Retirement
68
FDIC:
Deposits in US __ covered
Deposits outside of US __ covered
In US is covered
| Outside US not covered
69
Chapter 7 Bankruptcy: Provides relief through ____
Liquidation
70
Debts not discharged in bankruptcy:
Student & government loans
3 years of back taxes
Alimony & child support
Monies owed due to malicious acts, drunk driving, criminal fines/penalties, or embezzlement
71
Property exempt from bankruptcy:
Homestead, life insurance, qualified plans
72
Debts related to fraud ___?
| Debts associated with negligence ___?
Fraud not discharged
| Negligence discharged
73
Exempt limits:
IRAs/Roths:
Qualified plans/Converted IRAs:
Bene IRAs:
Up to $1M indexed (1362800)
Unlimited
None unless trust is named
74
Bankruptcy on credit report for __ years
| ___ to determine who can file for Chapter 7 bankruptcy protection
10 years
| Means testing- if average monthly income in excess of threshold for their region
75
```
Example Exam Question:
OJS lost wrongful death lawsuit & ordered to pay $5M. As a result, filed for bankruptcy. Which are exempt assets?
1. Roth IRA worth $900k
2. Rollover IRA from 401(k) worth $3.5M
3. Football memorabilia worth $1.5M
4. Brokerage account worth $2M
```
A. 1
B. 2
C. 3,4
D. 1,2
D
76
Chapter 11 Bankruptcy provides relief through ___?
Reorganization for businesses or self-employed
77
Chapter 13 Bankruptcy provides relief through ___?
Adjusting debts
78
Example Exam Question:
All of the following will be discharged in bankruptcy except:
A. Tort claim as a result of personal negligence
B. Consumer credit card debt
C. Claim arising out of breach of contract
D. Child support
D
79
Workers Compensation:
___ form of liability
___ if injured at work employee will collect benefits
Absolute
| Regardless of fault
80
Unemployment compensation:
Provides ___ income replacement
Funded by ___
Max number of weeks to receive __ with regular benefits lasting up to __ weeks (additional __ weeks for periods of high unemployment)
Moderate income replacement
Funded by tax on employers
39 weeks, regular up to 26 weeks, additional 13 weeks in high unemployment
81
ERISA:
| Protects __
Retirement plans of employees
82
Securities Act of 1933:
| Regulates ___ in the ___ market
New issues
| Primary
83
Securities Act of 1934:
Regulates __ markets
Established by __
Secondary markets
| SEC - primary function to regulate securities market
84
Securities Investor Protection Act of 1970:
Created __
Provides coverage if __
Created SIPC
| If broker-dealer becomes insolvent or there is unauthorized trading in account
85
FICO:
Assess borrower’s credit risk
Scores range from __-__
Goal is __
350-850
| 760+
86
5 Factors for Credit Scores
```
Payment history
Amount of debt
Length of credit history
New credit
Type of credit
```
87
```
Buy vs. Lease/Rent Questions:
Asset appreciate?
Tax advantages to either?
Asset obsolete soon?
Adding improvements at own expense?
```
Buy
All else equal, choose tax advantage
Lease
Own
88
Lesson 4 Review:
Due to shortage of corn, price of corn increases suddenly causing decrease in demand for corn & increase in demand for carrots. What are the two products?
A. Substitute
B. Complement
C. Elastic
D. Inelastic
A
89
Lesson 4 Review:
Grocery store puts chocolate chip cookies on sale which increases demand for milk. What are the two products?
A. Substitute
B. Complement
C. Elastic
D. Inelastic
B
90
Lesson 4 Review:
Low interest rates & high unemployment would be a characteristic of:
A. Expansion
B. Peak
C. Contraction
D. Trough
D
91
Lesson 4 Review:
Increasing inflation rates & increasing interest rates would be characteristics of:
A. Expansion
B. Peak
C. Contraction
D. Trough
A
92
Lesson 4 Review:
Movement along the demand curve represents change in quantity demanded. Which would cause a change in quantity demanded?
A. Increased savings rate
B. Decrease tax rate
C. Price change
D. More suppliers
C
93
Lesson 4 Review:
Which would cause demand curve to shift to the right?
A. Increased savings rate
B. Decreased tax rate
C. Price change
D. More suppliers
B
94
Lesson 4 Review:
Which would cause demand curve to shift to the left?
A. Increased savings rate
B. Decreased tax rate
C. Price change
D. More suppliers
A
95
Lesson 4 Review:
If price of movie tickets decreases by a small amount but there is a significant increase in demand, what can be said about the demand?
A. Elastic
B. Inelastic
C. Shift in the demand curve
D. Inverted demand
A
96
Lesson 4 Review:
If the Federal Reserve wants to increase interest rates, which is the following actions might it take?
A. Buy government securities
B. Sell government securities
C. Decrease the reserve requirement
D. Decrease the prime lending rate
B
97
Lesson 4 Review:
All of the following are examples of monetary policy except:
A. Open market operations
B. Discount rate
C. Reserve requirement
D. Prime lending rate
D
98
Lesson 4 Review:
Which of the following is not one of the primary responsibilities of the Federal Reserve?
A. Maintain price levels supported by the economy
B. Maintain long term economic growth
C. Maintain full employment
D. Ensure consistent positive returns in the equity markets
D
99
Lesson 4 Review:
During meeting with client they are leaning forward, arms open/resting on table. It’s likely the client is:
A. Relaxed, engaged, interest
B. Stressed & unwilling to share information
C. Anxious to leave the meeting
D. None
A
100
```
Lesson 4 Review:
What skills are necessary to effectively communicate with a client?
1. Frequent eye contact
2. Monitoring voice pitch & tone
3. Mirroring
```
A. 1
B. 1,2
C. 1,3
D. 1,2,3
D
101
Lesson 4 Review:
Which of the following are methods a planner may use to increase client’s trust?
A. Frequent communication & disclosure
B. Provide client with formal written document explaining data gathering process
C. None
D. A&B
D
102
Lesson 4 Review:
Shantel has credit card debt of $11,200 with interest rate of 12%. Wants to pay off balance in 4 years. What is monthly payment amount?
A. $226
B. $298
C. $2,896
D. $3,720
B
