Intro To Financial Planning Flashcards
Supply & Demand Curve (Supply): Movement ALONG the Curve is caused by?
Price
Supply & Demand Curve (Supply):
Higher Price = ?
Lower Price = ?
Higher: Increase in quantity supplied
Lower: Increase in demand of good or service
Supply & Demand Curve (Supply): Shift OF the curve is caused by?
Non-price related changes
- New technology
- changes in # of producers
- market expectations/conditions
- change in price of related goods/services
Law of Demand:
Price High= Demand _____
Falls
Law of Demand:
Price Low= Demand _____
Rises
Equilibrium Price: What tendency is there for change at this price?
Supply and Demand curves intersect - this price is where there’s NO tendency for change
Buyer’s response to a change in price is known as…
Price Elasticity of Demand
Elastic Price - Will change in price impact demand? (luxury goods)
Price change WILL impact demand
Inelastic Price (everyday goods)
Price change WON’T impact demand
GDP is the sum of what 4-factors?
- Total consumption
- Corporate Capital Investments
- Net Exports
- Government Spending
True/False: Congress controls Fiscal Policy
True
What are the 3-main goals of Fiscal Policy?
- High Employment
- Sustainable Growth
- Stable Prices
What (2) “tools” are available to Congress to control Fiscal Policy?
- Taxes
2. Government Spending
True/False: A ‘deficit’ is when taxes exceed spending
False
- Deficit=spending exceeds taxes
3-things that happen when “Monetizing Debt” are:
- Spending exceeds taxes (deficit)
- US Treasury issues bonds ‘bought back’ by banks/investors
- Buying increases the money supply (i.e. cash injection)
Who controls Monetary Policy?
The Federal Reserve (“The Fed”)
True/False: Congress controls the supply of money
False
- The Fed controls the supply of money
What are the (2) types of money supplies?
- “Transaction” Money (currency, checking accounts, travelers checks)
- Broad Money (savings accounts, MMA accounts)
The Fed can influence the economy in what 3-ways?
- Interest Rates
- Buying/Selling Treasury Securities
- Setting bank reserve requirements to control lending
The Fed buying treasury securities will __________ the money supply
Increase
The Fed selling treasury securities will ___________ the money supply
Decrease
What ratio can either stimulate or restrict the economy based on The Fed’s action?
Required Reserve Ratio
Required Reserve Ratio:
Higher Reserves = less money to loan & ______ spending
LESS
Higher = less & less
Required Reserve Ratio:
Lower Reserves = _______ money to loan & more spending
MORE
Lower = more & more
Discount (interest) Rate: who pays who?
The Fed & Banks
Banks pay The Fed
Higher rates=higher cost of borrowing
Lower rates=lower cost of borrowing (COVID 2020)
What is the rate that banks charge each other to borrow via overnight loans?
Federal Funds Rate
True/False: The Federal Funds Rate is directly influenced by the Discount Rate by The Fed?
FALSE
the discount rate INDIRECTLY influences the Fed Funds Rate by The Fed setting a ‘target range’
The lending rate offered by banks to favored customers is better known as the….
Prime Rate
based on The Fed’s discount rate
Increase in money supply, more reserves, and more lending available are all factors of The Fed ______ (buying/selling) US Treasury & Govt. Securities
BUYING
Decrease in money supply, less reserves, and less lending available are all factors of The Fed _______ (buying/selling) US Treasury & Govt. Securities
SELLING
When GDP is negative for 2-consecutive quarters, we are in a ___________
Recession
GDP without inflation is:
A. Real
B. Nominal
A. Real
GDP with inflation is:
A. Real
B. Nominal
Nominal
Real GDP includes 3-factors, what are they?
- Market value of all final goods & services produced in a country
- Income of foreigners working in the US
- Profits foreign companies earn in the US
Inflation within a business cycle includes? (5-items)
- Demand exceeds supply @ current prices
- Prices bid UP
- Over-expansion due to expectation of rising profits
- Increased interest rates
- Depressed real income
General Inflation is made up of a COMBINATION of these 5-things:
- Price increases
- Low unemployment
- High wages
- Rapid economic growth
- Rising levels of credit
