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CIA PT 3 > Legal, Economic, and Regulatory Issues > Flashcards

Legal, Economic, and Regulatory Issues Flashcards

1
Q

Is a promise or an agreement that the law recognizes as establishing a duty of performance. It is enforceable by applying a remedy for its breach.

A

Contract

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2
Q

The basic elements of a contract are:

A

1) Mutual Assent
2) Consideration,
3) Capacity, and
4) Legality

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3
Q

May require that some contracts be in writing to be enforeceable.

A

Statute of frauds

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4
Q

Is the principal measure of national economic performance. It is the total market value of all final goods and services produced within the boundaries of a country, whether by domestic or foreign-owned sources, during a specified period of time (usually a year).

A

Gross domestic product (GDP)

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5
Q

Calculates GDP as the sum of all expenditures in the economy.

Personal consumption expenditures + Investment expenditures by business + Governmental expenditures for goods & services + Net exports (Total exports - Total imports)

A

Expenditures approach GDP

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6
Q

Arrives at the same total GDP as the expenditures approach through a different calculation

Salaries & Wages + Rental income + Interest income + Profits of corporations, proprietors, and partnerships = National Income + Indirect business taxes + Net Income of foreigners = Net Domestic Product (NDP) + Depreciation (consumption of fixed capital)

A

Income approach

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7
Q

Involves adding the total market value of all final goods & services in current dollars

A

Nominal GDP

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8
Q

= Nominal GDP divided by Price index (in hundredths)

A

Real GDP

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9
Q

The overall trend of growth is periodically interrupted by periods of instability. This tendency toward instability within the context of overall growth is termed

A

The business cycle

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10
Q

The economy is at full employment and produces maximum output for the current level of resources and technology.

A

Peak

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11
Q

Is defined as a period during which real GDP falls and unemployment rises.

A

Recession

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12
Q

Economic activity reaches its lowest ebb.

A

Trough

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13
Q

Output and employment rise.

A

Recovery

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14
Q

Are variables that in the past have had a high correlation with the change in GDP. Forecast changes in economic activity.

A

Economic indicators

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15
Q

Types of economic indicators.

A

1) Leading economic indicator
2) Lagging indicator
3) Coincident indicator

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16
Q

Is a forecast of future economic trends.

A

Leading economic indicator

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17
Q

Changes after the change in the economic activity has occurred.

A

Lagging indicator

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18
Q

Changes at the same time as the change in the economic activity

A

Coincident indicator

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19
Q

Is an increase in the general level of prices in the economy.

A

Inflation

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20
Q

An inflation in currency is a

A

Decrease in the purchasing power of that currency.

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21
Q

Is a measure of the price of a market basket of goods and services in 1 year compared with the price in a designated base year.

A

Consumer price index (CPI)

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22
Q

= (Cost of market basket in current year divided by Cost of market base in base year) x 100

A

Consumer price index (CPI)

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23
Q

Is calculated by comparing the change in the 2 years’ consumer price indexes.

A

Rate of inflation

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24
Q

= (Current-year price index minus Prior-year price index) divided by Prior-year price index

A

Rate of inflation

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25
Q

Unemployment can be categorized as:

A

1) Frictional unemployment
2) Structural unemployment
3) Cyclical unemployment
4) Full employment

26
Q

Is the amount of unemployment caused by the normal operation of the labor market.

A

Frictional unemployment

27
Q

Results when the composition of the workforce does not match the need. It is the result of changes in consumer demand, technology, and geographical location.

A

Structural unemployment

28
Q

Is directly related to the level of an economy’s output. As consumers slow their spending, entities cut back production and lay off workers.

A

Cyclical unemployment

29
Q

The natural rate of unemployment consist of the sum of frictional and structural unemployment.

A

Full employment

30
Q

A change in the money supply affects the economy by changing the

A

Interest rate

31
Q

Stimulates investment spending by businesses and increases GDP.

A

An increase in the money supply (expansionary monetary policy) decreases the interest rate in the economy.

32
Q

A fall in investment spending reduces GDP, which decreases the price level and reduces inflation.

A

A decrease in the money supply (tight monetary policy) increases the interest rate in the economy

33
Q

A nation’s central bank has the following three main tools of monetary policy:

A

1) Open-Market operations
2) Changes in the Required reserve ratio
3) Changing the Discount rate

34
Q

Is the most valuable tool. The central bank can either purchase government securities from, or sell them to, commercial banks.

A

Open-market operations

35
Q

Are used less frequently. A commercial bank must have a certain percentage of its total deposits on reserve. Is the percentage of deposits that must be kept on hand.

A

Required reserve ratio

36
Q

Rate at which banks can borrow money from the central bank.

A

Changing the discount rate

37
Q

Countries can mutually benefit from international trade due to

A

Comparative advantages

38
Q

A country has a comparative advantage in the production of a good when it has a

A

Lower opportunity cost than another producer

39
Q

Is any measure taken by a government to protect domestic producers.

A

Protectionism

40
Q

Protectionism takes many forms, such as:

A

1) Tariffs
2) Import quotas
3) Domestic content rules

41
Q

Are consumption taxes designed to restrict imports.

A

Tariffs

42
Q

Set fixed limits on different products.

A

Import quotas

43
Q

Require that at least a portion of any imported product be constructed from parts manufactured in the importing nation.

A

Domestic content rules

44
Q

Set one unit of currency equal to a given number of units of another currency by law.

A

Fixed exchange rates

45
Q

Allow the market to determine the exchange rate of two currencies.

A

Floating exchange rates

46
Q

When the demand for a foreign country’s product rises, demand for its currency

A

Also rises

47
Q

The following factors affect currency exchange rates:

A

1) Relative income levels
2) Relative interest levels
3) Relative inflation rates

48
Q

Citizens with higher incomes look for new consumption opportunities in other countries, driving up the demand for those currencies.

A

Relative income levels

49
Q

When the interest rates in a given country rise relative to those of other countries, more investors purchase the high-interest country’s currency to make investments, driving up the demand for this currency.

A

Relative interest rates

50
Q

When the rate of inflation in a given country rises relative to the rates of other countries, the countries, the products of that country become relatively expensive and the demand for that country’s currency falls.

A

Relative inflation rates

51
Q

Tax rate structures include:

A

1) Progressive
2) Proportional
3) regressive

52
Q

Higher income persons pay a higher percentage of their income in taxes

A

Progressive

53
Q

At all levels of income, the percentage paid in taxes is constant.

A

Proportional

54
Q

As income increases, the percentage paid in taxes decreases.

A

Regressive

55
Q

Is the rate applied to the last unit of taxable income.

A

Marginal tax rate

56
Q

Is the total tax liability divided by the amount of taxable income.

A

Average tax rate

57
Q

Is the total tax liability divided by total economic income

A

Effective tax rate

58
Q

Addresses quality of life issues that are difficult for market forces to remedy, such as workplace and product safety, pollution, and fair employment practices.

A

Social regulation

59
Q

One purpose, is to provide complete and fair disclosure to potential investors in the initial issuance of securities.

A

Securities law

60
Q

Restraints of trade in domestic or foreign commerce may be prohibited by

A

Antitrust law

61
Q

A government agency may help to maintain the safety of drugs, food, cosmetics, etc., and may also enforces laws requiring the labeling of hazardous substances.

A

Consumer protection laws

62
Q

An agency may be created to centralize environmental control functions of the national government.

A

Environmental protection

CIA PT 3 (28 decks)

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