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CFP July 2022 > Fundamentals Lesson 4 > Flashcards

Fundamentals Lesson 4 Flashcards

1
Q

Monetary & Fiscal Policy
Expansion is ____?
Contraction is ____?

A

Expansion: Loosening
Contraction: Tightening/Slow Down

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2
Q

Shift in Demand Curve due to:

A

Income
Taxes
Savings Rate
Disposable Income

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3
Q

Shift in Supply Curve due to:

A

Changes in technology
Competition
Anything other than price

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4
Q

Price at which quantity demanded equals quantity suppliers is:

A

Equilibrium

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5
Q

Elastic demand:

A

Responds significantly to changes in price

Almost horizontal

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6
Q

Inelastic demand:

A

Responds little to change in price

Almost vertical

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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

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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

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9
Q

Consumer durables & capital goods are ____ in nature & fluctuate ____ with the business cycle.

A

Cyclical

Directly

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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

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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

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12
Q

Recession: __ consecutive months of declining GDP
Depression: __ consecutive months of recession

A

6

18

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13
Q

Inflation formula:

A

Inflation = (price levelx - price levelx-1) / price levelx-1

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14
Q

Moderate inflation would be __-__% per year

A

1-2%

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15
Q

Galloping inflation is when money loses value _____

A

Very quickly

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16
Q

Deflation:

A

Opposite of inflation; prefer to hold cash

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17
Q

Disinflation:

A

Decline or slowdown in rate of inflation

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18
Q

Consumer Price Index (CPI) measures:

A

Price change in basket of goods & services at retail level

Applicable to consumer purchases (2-3%)

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19
Q

Producer Price Index (PPI) measures:

A

Price changes in wholesale & manufacturing sectors

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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

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21
Q

Leading Indicator Examples

A 
Initial unemployment claims
Stock prices
Money supple
New manufacturing orders
New private housing units
Consumer sentiment
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22
Q

Coincident Indicator Examples

A

Employees on payroll
Personal income
Industrial production
Manufacturing sales

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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
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24
Q

Monetary Policy:

Controlled by ____?

A

Federal Reserve - they control money supply & influence interest rates

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25
Q

3 Main Goals of the Federal Reserve:

A
  1. Maintain long term economic growth
  2. Maintain price levels supported by the economy
  3. Maintain full employment
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26
Q

Ease Monetary Policy (_____ money supply & _____ interest rates)

A

Increase money supply & Decrease interest rates

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27
Q

Tighten Monetary Policy (_____ money supply & _____ interest rates)

A

Decrease money supply & Increase interest rates

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28
Q

4 Tools Federal Reserve Can Use:

A
  1. Reserve Requirement
  2. Discount Rate
  3. Open Market Operations
  4. Excess Reserves
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29
Q

Reserve Requirement:

As RR increases, there’s ____ cash available to lend. Money supply ____ & interest rates ____?

A

Less
Decreases
Increase

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30
Q

Reserve Requirement:

As RR decreases, there’s ____ cash available to lend. Money supply ____ & interest rates ____?

A

More
Increases
Decrease

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31
Q

Discount Rate:

A

Overnight interest rate banks can borrow from Fed at to meet RR.

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32
Q

Discount Rate:

As DR decreases, short term interest rates ____?

A

Decrease

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33
Q

Discount Rate:

As DR increases, short term interest rates ____?

A

Increase

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34
Q

The Federal Reserve does NOT control the prime lending rate.

A

DR is banks borrowing from Fed.

Fed Funds Rate is banks from banks.

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35
Q

Open Market Operations:

A

As Fed buys/sells government securities, money supply is influence & places pressure on interest rates

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36
Q

Open Market Operations:

As Fed buys Treasuries, money supply ____ & interest rates ____?

A

Money supply increases

Interest rates decrease

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37
Q

Open Market Operations:

As Fed sells Treasuries, money supply ____ & interest rates ____?

A

Money supply decreases

Interest rates increase

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38
Q

Excess Reserves:

A

Monies bank holds at Federal Reserve in excess of RR

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39
Q

Expansionary or Contractionary: Increase in RR, Increase in DR, Sales of Treasuries, Increase in Excess RR

A

Contractionary (Tighten)

Money supply decreases & interest rates increase

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40
Q

Expansionary or Contractionary: Decrease in RR, Decrease in DR, Buying of Treasuries, Decrease in Excess RR

A

Expansionary (Loosen)

Money supply increases & interest rates decrease

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41
Q

Fiscal Policy:

Controlled by ____?

42
Q

Congress controls spending & taxation which influences?

A

Money supply & Interest rates

43
Q

3 Main Goals of Fiscal Policy:

A
  1. Maintain economic growth
  2. Maintain price stability
  3. Maintain full employment
44
Q

3 Tools of Fiscal Policy:

A
  1. Taxation
  2. Spending
  3. Debt Management
45
Q

Taxation:

Increasing tax rates ____ money available for spending which ____ interest rates

A

Decreases money available

Increases interest rates

46
Q

Taxation:

Decreasing tax rates ____ money available for spending which ____ interest rates

A

Increases money available

Decreases interest rates

47
Q

Spending:

Increasing government spending ____ money supply & ____ interest rates

A

Increases money supply

Decreases interest rates

48
Q

Spending:

Decreasing government spending ____ money supply & ____ interest rates

A

Decreases money supply

Increases interest rates

49
Q

Debt Management:

Deficit spending:

A

Deficit spending is when Congress spends more than tax revenues that are collected. Congress must borrow to continue spendjng

50
Q

Debt Management:

As Congress borrows more to continue spending, money supply ____ & interest rates ____?

A

Money supply decreases

Interest rates increase

51
Q

Debt Management:

As Congress collects more tax revenue to fund spending, money supply ____ & interest rates ____?

A

Money supply increases

Interest rates decrease

52
Q

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

53
Q

Foreign investors also influence money supply & interest rates.
Foreign investors selling dollar dominated assets will ____ money supply & ____ interest rates?

A

Decrease money supply

Increase interest rates

54
Q

Foreign investors buying dollar dominated assets will ____ money supply & ____ interest rates?

A

Increase money supply

Decrease interest rates

55
Q

Yield curve:
Plots:
Normal is:
Inverted is:

A

Plots current interest rates against term to maturity for similar securities
Normal is concave
Inverted is convex

56
Q

Expansionary policy typically results in a ____ yield curve?

57
Q

Contractionary policy typically results in a ____ yield curve?

A

Inverted yield curve

58
Q

Consumer Protection Laws:
Protects:
Who protects?

A

Protects consumers from corporations
Protects honest business from less than honest business
Federal Trade Commission Protects

59
Q

Fair Credit Reporting Act:

If refused credit/employment based on information in credit report:

A

Consumer must be provided with the information in the report

60
Q

Credit Bureaus:

A

Experian, Equifax, Transunion

Can receive 1 free from each every year

61
Q

Fair Debt Collection Act:
Collection calls are limited to ____-____?
Collectors must contact?
Permitted at work?

A

8:00am-9:00pm
Attorney if you have one
Not if employer forbids

62
Q

Fair Credit Billing Act:

Gives creditor ___ days to acknowledge billing dispute & explain/correct error within ___ days?

A

30 to acknowledge

90 to correct

63
Q

Fair Credit Billing Act:

Consumer’s liability for lost-stollen credit card is limited to $___?

A

$50 per card

64
Q

Truth in Lending Act:
Lenders must disclose:
Interest must be stated in terms of:
Administer by:

A

Must disclose total cost of financing including cost of credit life insurance
Interest stated in APR
Administered by Federal Reserve

65
Q 
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

66
Q

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)

A

45 days notice
Cannot charge interest
Cannot be issued to under 21 unless co-signer
Limited to $25/$35 if payment missed

67
Q

FDIC Insurance:
$____ of insurance per account type ownership
4 Ownership account types:

A

$250k

Individual, Joint, Trust, Self-Directed Retirement

68
Q

FDIC:
Deposits in US __ covered
Deposits outside of US __ covered

A

In US is covered

Outside US not covered

69
Q

Chapter 7 Bankruptcy: Provides relief through ____

A

Liquidation

70
Q

Debts not discharged in bankruptcy:

A

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
Q

Property exempt from bankruptcy:

A

Homestead, life insurance, qualified plans

72
Q

Debts related to fraud ___?

Debts associated with negligence ___?

A

Fraud not discharged

Negligence discharged

73
Q

Exempt limits:
IRAs/Roths:
Qualified plans/Converted IRAs:
Bene IRAs:

A

Up to $1M indexed (1362800)
Unlimited
None unless trust is named

74
Q

Bankruptcy on credit report for __ years

___ to determine who can file for Chapter 7 bankruptcy protection

A

10 years

Means testing- if average monthly income in excess of threshold for their region

75
Q 
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

76
Q

Chapter 11 Bankruptcy provides relief through ___?

A

Reorganization for businesses or self-employed

77
Q

Chapter 13 Bankruptcy provides relief through ___?

A

Adjusting debts

78
Q

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

79
Q

Workers Compensation:
___ form of liability
___ if injured at work employee will collect benefits

A

Absolute

Regardless of fault

80
Q

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)

A

Moderate income replacement
Funded by tax on employers
39 weeks, regular up to 26 weeks, additional 13 weeks in high unemployment

81
Q

ERISA:

Protects __

A

Retirement plans of employees

82
Q

Securities Act of 1933:

Regulates ___ in the ___ market

A

New issues

Primary

83
Q

Securities Act of 1934:
Regulates __ markets
Established by __

A

Secondary markets

SEC - primary function to regulate securities market

84
Q

Securities Investor Protection Act of 1970:
Created __
Provides coverage if __

A

Created SIPC

If broker-dealer becomes insolvent or there is unauthorized trading in account

85
Q

FICO:
Assess borrower’s credit risk
Scores range from __-__
Goal is __

A

350-850

760+

86
Q

5 Factors for Credit Scores

A 
Payment history
Amount of debt
Length of credit history
New credit
Type of credit
87
Q 
Buy vs. Lease/Rent Questions:
Asset appreciate? 
Tax advantages to either?
Asset obsolete soon?
Adding improvements at own expense?
A

Buy
All else equal, choose tax advantage
Lease
Own

88
Q

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

89
Q

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

90
Q

Lesson 4 Review:
Low interest rates & high unemployment would be a characteristic of:

A. Expansion
B. Peak
C. Contraction
D. Trough

91
Q

Lesson 4 Review:
Increasing inflation rates & increasing interest rates would be characteristics of:

A. Expansion
B. Peak
C. Contraction
D. Trough

92
Q

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

93
Q

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

94
Q

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

95
Q

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

96
Q

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

97
Q

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

98
Q

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

99
Q

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

100
Q 
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

101
Q

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

102
Q

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

CFP July 2022 (24 decks)

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