Lesson 9 Flashcards by Mark Hill

Knowledge Check

Low interest rates and high unemployment would be characteristic of what phase of the business cycle?

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

D. Trough

Expansion: increasing interest rates, decreasing unemployment.
Peak: highest interest rates, lowest unemployment.
Contraction: decreasing interest rates, increasing unemployment.
Trough: lowest interest rates, highest unemployment.

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Knowledge Check

During a period of recession/contraction, all of the following would be true except?

A. The supply of goods and services would be decreasing

B. Interest rates would be decreasing

C. Unemployment would be increasing

D. Inflation would be increasing

During a recession / contraction, there is a decline in demand. GDP is decreasing, inflation is decreasing, and unemployment is increasing. Since demand is decreasing, the supply of goods and services will also be decreasing. To stimulate economic growth, the money supply will likely increase, causing interest rates to decline.

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Knowledge Check

What are the three primary goals of the Federal Reserve?

Maintain price levels
Maintain full employment
Facilitate long-term economic growth

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Knowledge Check

If the federal reserve wants to increase interest rates, which of the following actions my it take?

A. Buy government securities

B. Sell government securities

C. Decrease the reserve requirement

D. Decrease the federal government spending

B. Sell government securities

For interest rates to increase, the money supply must decrease. If the Federal Reserve sells government securities, they are putting notes on the market and taking cash off the market. As cash comes off the market, the money supply decreases, and interest rates increase. Decreasing the reserve requirement will increase the money supply and lower interest rates. Congress controls federal government spending, not the Federal Reserve.

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Knowledge Check

All of the following statements about the Federal Reserve’s use of open market operations in a tightening policy are correct EXCEPT:

A. More cash would be added to the Federal Reserve’s balance sheet.

B. More Treasury securities would enter the open market.

C.Interest rates would likely decrease.

D. The money supply would decrease.

C. Interest rates would likely decrease.

Under a tightening policy, the Federal Reserve sells Treasury securities on the open market and adds more cash to its balance sheet. With less money in the open market to be loaned out, the banks are likely to raise interest rates.

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Knowledge Check

Movement along the demand curve represents a change in quantity demanded. Which of the following is the most likely cause of a change in quantity demanded?

A. Increased savings rate

B. Decrease tax rate

C. Price change

D. More suppliers

C. Price change

Anytime there is a change in price, it is a movement along the demand or supply curve. Movement along the demand curve is a change in quantity demanded. A change in the savings or tax rates will cause the demand curve to shift. As more suppliers enter the market, the supply curve will shift to the left.

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Knowledge Check

A country raises tax rates. What effect is this likely to have on the demand and supply curves?

A. The demand curve will likely shift down and to the left.

B. The demand curve will likely shift up and to the right.

C. The supply curve will likely shift down and to the right.

D. Tax rates are not usually related to demand or supply curves.

A. The demand curve will likely shift down and to the left.

Higher tax rates will likely shift the demand curve down and to the left.

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Knowledge Check

The most popular method of determining a credit score is the Fair Isaac Credit Organization (FICO) method.

A. True

B. False

A. True

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Knowledge Check

All of the following claims will be discharged in bankruptcy EXCEPT

A. Tort claim as a result of personal negligence

B. Consumer credit card debt

C. A claim arising out of a breach of contract

D. Child support

The following debts are not discharged in bankruptcy: all student loans, property liens, three years of back taxes, child support, alimony, and debts obtained through fraud.

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Knowledge Check

The Shady Merchant Bank, an FDIC member, has just gone bankrupt. Your client had two accounts with them: an individual checking account and a joint savings account with his wife. What is his household’s FDIC limit for these accounts?

A. $100,000

B. $250,000

C. $500,000

D. $750,000

FDIC protection is $250,000 per depositor per account. His household receives $250,000 from his checking account. Both he and his wife receive an additional $250,000 from the joint account ($500,000 total from the joint account). Therefore, they receive $750,000 total ($250,000 + $500,000).

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Knowledge Check

Your friend is always chasing the next get-rich-quick scheme. After receiving an inheritance, he opened an account with an SIPC insured broker and then invested everything in a single penny stock from a risky company. That company just declared bankruptcy. “No problem,” he tells you, “The feds will just bail me out – that’s what SIPC insurance is for.” What do you tell him?

A. He’s correct, but only up to $500,000

B. He’s correct, but only up to $250,000

C. He’s incorrect: SIPC insurance protects only cash, not investments

D. He’s incorrect: SIPC insurance does not protect against investment loses

SIPC protects consumers from losses due to brokerage failure. It does not protect against investment losses.

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Quiz

Which act established regulations of the primary market?

A. The Securities Act of 1933

B. The Securities Exchange Act of 1934

C. The Investment Company Act of 1940

D. The Investment Advisers Act of 1940

A. The Securities Act of 1933

The Securities Act of 1933 established regulations of the primary market.

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Quiz

Which of the following statements is correct?
Question 1 options:

A) A U.S. businessman who owns a factory in Mexico would be included in the U.S. GDP.

B) A U.S. soccer player who plays professionally in New Zealand would be included in the U.S. GNP.

C) An Australian actor who works in the United States would not be included in the U.S. GDP.

D) All of the above are correct.

B) A U.S. soccer player who plays professionally in New Zealand would be included in the U.S. GNP.

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Quiz

Which of the following terms is used to describe a situation in which inflation is continuing but at a declining rate?
Question 2 options:

A) Disinflation

B) Deflation

C) Outflation

D) None of the above

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Quiz

Which of the following terms is used to describe a situation in which inflation is continuing but at a declining rate?
Question 2 options:

A) Disinflation

B) Deflation

C) Outflation

D) None of the above

A) Disinflation

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Quiz

Which of the following terms describes a situation in which an individual is voluntarily unemployed because he or she is seeking other job opportunities and has yet to find the desired employment?
Question 3 options:

A) Cyclical unemployment

B) Structural unemployment

C) Wait-and-see unemployment

D) Frictional unemployment

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Quiz

Which of the following is NOT one of the Federal Reserve’s primary goals?

Question 4 options:

A) Maintain full employment.

B) Keep interest rates low.

C) Maintain price levels.

D) Maintain long-term economic growth.

B) Keep interest rates low.

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Quiz

Which of the following would cause the demand curve to shift downward and to the left?
Question 5 options:

A) A decrease in the price of a substitute product

B) An increase in disposable income

C) A decrease in tax rates

D) A decrease in the unemployment rate

A) A decrease in the price of a substitute product

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Quiz

Which of the following is an example of monetary policy?
Question 6 options:

A) Adjusting the discounting rate

B) Adjusting the reserve requirement

C) Conducting open market operations

D) All of the above

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Quiz

Which of the following is not a goal of the Federal Deposit Insurance Corporation (FDIC)?
Question 7 options:

A) Insure deposits.

B) Protect the consumer from excessive losses in the stock market.

C) Manage receiverships.

D) Supervise financial institutions for financial stability.

B) Protect the consumer from excessive losses in the stock market.

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Quiz

All the following are true with regard to Securities Investor Protection Corporation (SIPC) protection EXCEPT:
Question 8 options:

A) The SIPC covers brokerage accounts in a way that is similar to how the FDIC covers bank accounts.

B) SIPC coverage is $500,000 per account, but only $250,000 of that total may be cash.

C) It helps protect investors from the risk of brokerage firm insolvency.

D) It protects investors from investment losses up to a lifetime total of $500,000.

Quiz

Which of the following debts are dischargeable in Chapter 7 bankruptcy?
Question 9 options:

A) Student loans

B) Auto loans

C) Property liens

D) Debt obtained through fraud

A) Student loans

Quiz

Frank and Mina are married and have two boys, Sylvio and Quincey. They have the following accounts with the following balances at their local bank:

Frank (individual account): $450,000
Mina (individual account): $175,000
Frank and Mina (joint account): $300,000
Mina and Sylvio (joint account): $100,000
What amount of the money in the family’s accounts will be insured by the FDIC?

Question 10 options:

A) $500,000.00

B) $825,000.00

C) $875,000.00

D) $900,000.00

C) $825,000.00

Quick Quiz

Microeconomics is the study of economics factors that impact the economy as a whole including the GDP, unemployment, and inflation.

A. True

B. False

Inflation is not included in Microeconomics

# Quick Quiz Inflation results in a transfer of wealth from borrowers to holders of cash A. True B. False

B. False

# Quick Quiz CPI measures the overall price levels for a basket of goods and services that consumers purchase A. True B. False

A. True

# Quick Quiz An expansion phrase in the business cycle is characterized by an increase in consumer spending resulting in higher output by firms A. True B. False

A. True

# Quick Quiz The index of leading economic indicators summarize past performance. A. True B. False

B. False

# Quick Quiz Monetary policy represents the government position on whether to expand or contract the economy by using taxation and government spending. A. True B. False

B. False

# Quick Quiz The discount rate is the interest rate that the federal reserve charges financial institutions for short term loans A. True B. False

A. True

# Quick Quiz If the federal reserves monetary policy is to tighten the money supply, then it will sell US treasury securities (open market operations) to reduce the deposits held by banks at the federal reserve A. True B. False

A. True

# Quick Quiz Demand represents the quantity firms are willing to produce and sell of a good or service at a particular price A. True B. False

B. False

# Quick Quiz Compliments are products that are consumed jointly and substitutes are products that serve in a similar purpose A. True B. False

True

# Quick Quiz Elasticity of demand determines how much demand will change as a result of a change in price A. True B. False

A. True

# Quick Quiz Anytime there is a change in price there will be a shift in the supply curve A. True B. False

B. False

# Quick Quiz Chapter 11 bankruptcy is for individuals and businesses to use for protection from creditors under the federal and state bankruptcy laws A. True B. False

B. False

# Quick Quiz The FTC works for the consumer to prevent fraudulent deceptive and unfair business practices in the marketplace A. True B. False

A. True

# Quick Quiz Denying credit on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance is a violation of the equal credit opportunity act A. True B. False

A. True

# Quick Quiz The Card act of 2009 prevents credit card issuer’s from charging hidden fees and extra ordinary interest rates A. True B. False

A. True

# Quick Quiz The FDIC insures deposit accounts up to $100,000 per depositor per legal account ownership per financial institution A. True B. False

B. False

# Quick Quiz The SIPC is a statutorily created nonprofit membership corporation funded by member security broker-dealers with the goal of returning cash and securities to investors in the event a brokerage firm becomes insolvent A. True B. False

A. True

# Quick Quiz The securities exchange act of 1934 requires any new security be registered with the SEC filing a registration statement A. True B. False

B. False

# Quick Quiz FINRA is a self regulatory organization for all security firms doing business in the United States and requires any person who sell securities to register with the organization A. True B. False

A. True

# Quiz Two of your clients just told you that they cut up all of their credit cards and closed all of their credit accounts. Based on this information, which of the following statements is (are) true? I. Their credit score is likely to increase in the next month. II. Their ability to meet financial hardships has decreased. A. I Only B. Il only C. Both I and II D. Neither I or II

B. Il only

# End of Chapter Questions During a period of recession /contraction, which of the following would be true? 1. The supply of goods and services would be decreasing. 2. Interest rates would be decreasing. 3. Unemployment would be increasing. 4. Inflation would be decreasing. A. 1 and 2. B. 1 and 3. C. 1, 2 and 4. D. 1, 2, 3, and 4.

D. 1, 2, 3, and 4. During a recession / contraction, there is a decline in demand. GDP is decreasing, inflation is decreasing, and unemployment is increasing. Since demand is decreasing, the supply of goods and services will also be decreasing. To stimulate economic growth, the money supply will likely increase, causing interest rates to decline.

# End of Chapter Questions Phyllis had three credit cards stolen. Before she realized they were stolen, the following amounts were already fraudulently charged: American Express $2,000 VISA $500 MasterCard $40 How much is Phyllis’ expected liability for the fraudulent charges? a. $50. b. $140. c. $150. d. $2,400.

B. $140 American Express $2,000 = $50 VISA $500 = $50 MasterCard $40 = $50 (Only $40 charged)

# End of Chapter Questions Due to a shortage in supply, the price of corn increases suddenly, causing a decrease in the demand for corn and an increase in the demand for carrots. Which term best describes the relationship between corn and carrots? A. Substitute. B. Complement. C. Equilibrium. D. Elastic.

C. Equilibrium. Substitutes are products that serve a similar purpose. Complements are products that are consumed jointly. The price change of one product will impact the quantity demanded for both the original product and the substitute or complement product. Equilibrium refers to the price at which the quantity demanded equals the quantity supplied. Elasticity of demand measures the percentage change in quantity demanded given a specified percentage change in price.

# End of Chapter Questions Movement along the demand curve represents a change in quantity demanded. Which of the following is the likely cause of a change in quantity demanded? A. Increased savings rate. B. Decrease tax rate. C. Price change. D. More suppliers.

C. Price change. Anytime there is a change in price, it is a movement along the demand or supply curve. Movement along the demand curve is a change in quantity demanded. A change in the savings or tax rates will cause the demand curve to shift. As more suppliers enter the market, the supply curve will shift to the left.

# End of Chapter Questions If the Federal Reserve wants to increase interest rates, which of the following actions might it take (assume the reserve requirement is not currently at zero percent)? A. Buy government securities. B. Sell government securities. C. Decrease the reserve requirement. D. Decrease federal government spending.

B. Sell government securities. d For interest rates to increase, the money supply must decrease. If the Federal Reserve sells government securities, they are putting notes on the market and taking cash off the market. As cash comes off the market, the money supply decreases and interest rates increase. Decreasing the reserve requirement will increase the money supply and lower interest rates. Congress controls federal government spending, not the Federal Reserve.