Mod 7: The Economic Environment and Consumer Protection Laws

Question 1

The study of how individuals and companies make decisions to allocate scarce resources, which helps in understanding how individuals and companies prioritize their wants

Answer 1

Microeconomics

Question 2

The study of an economy as a whole

Answer 2

Macroeconomics

Question 3

The responsiveness of the quantity of a good demanded to changes in price, all other economic forces remaining constant

Answer 3

Price Elasticity

Question 4

The total monetary value of all goods and services produced within the domestic United States over the course of a given year, including income generated domestically by a foreign firm

Answer 4

Gross Domestic Product (GDP)

Question 5

GDP Formula

Answer 5

GDP = C + I + G + NE

C=consumption
I=investment
G=government spending
NE=net exports

Question 6

Who makes fiscal policy decisions?

Answer 6

The federal government

Question 7

What 2 tools does are available to the federal government to implement policy changes?

Answer 7

1) Making changes in tax laws

2) Increasing and decreasing government spending

Question 8

Fiscal Policy

Often involves increasing government spending or reducing taxes for individuals and/or businesses

Answer 8

Expansionary Policy

Question 9

Fiscal Policy

Commonly incorporates decreases to government spending and/or increases to individual and/or business taxes

Answer 9

Contractionary Policy

Question 10

What 3 major tools are available to the Federal Reserve to enact monetary policy?

Answer 10

1) Reserve Requirements for Banks
2) Discount Rate that Banks Pay for Short-Term Loans from the Fed
3) Open Market Operations

Question 11

The rate at which banks can borrow from any of the Federal Reserve Banks

Answer 11

The Discount Rate

Question 12

What is the only interest rate that the Fed directly controls?

Answer 12

The Discount Rate

Question 13

What two interest rates does the Fed greatly influence (or greatly controls)?

Answer 13

1) Federal Funds Rate

2) Prime Rate

Question 14

The interest rate charged on short-term borrowing between banks (often overnight to fulfill reserve requirements)

Answer 14

The Federal Funds Rate

Question 15

The rate of interest charged by commercial banks to their best business and personal customers. (normally about 3% higher than the federal funds rate)

Answer 15

Prime Rate

Question 16

Reflects movements in economic activity and illustrates the concepts of supply and demand

Answer 16

The business cycle

Question 17

Occurs when the GDP has experienced a decrease in real terms for two consecutive quarters or a minimum of six months–from a baseline of zero

Answer 17

Recession

Question 18

When the GDP has experienced a decrease in real terms for six consecutive quarters or a minimum of 18 months–from a baseline of zero

Answer 18

Depression

Question 19

Economic indicator that tends to precede actual economic change

Answer 19

LEADING Indicator

Question 20

Economic indicator that occurs simultaneously during the business cycle and confirms the stage that the economy is currently experiencing

Answer 20

COINCIDENT Indicator

Question 21

Economic indicator that usually changes after the economy has passed through one business cycle and allows confirmation of a previous economic environment

Answer 21

LAGGING or CONFIRMING Indicator

Question 22

Economic Indicators

Leading Indicator Examples (6)

Answer 22

• Housing Starts
• New Unemployment Claims
• Bond Yields (spread between 10-year Treasury bonds and Federal Funds)
• Indexes of Stock Prices
• Orders for Durable Goods
• Changes in Investor Sentiment

Question 23

Economic Indicators

Coincident Indicator Examples (3)

Answer 23

• Industrial Production
• Level of Personal Income
• Amount of Corporate Profits

Question 24

Economic Indicators

Lagging or Confirming Indicators Examples (4)

Answer 24

• Prime Interest Rates
• Changes in CPI, particularly for services
• Amount of Business and Consumer Loans Outstanding
• Average Duration of Unemployment

Question 25

What are the two most common measures of inflation?

Answer 25

1) Consumer Price Index (CPI) | 2) Producer Price Index (PPI)

Question 26

Produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services

Answer 26

CPI Program

Question 27

Measures the average change over time in the selling prices received by domestic producers for their output

Answer 27

PPI Program

Question 28

An investment strategy for a deflationary period

Answer 28

- Preservation of capital should be the primary concern | - Investments should center on very high-quality debt instruments

Question 29

When prices are still rising, but at a declining rate

Answer 29

Disinflation

Question 30

In this type of bankruptcy the individual is permitted to keep certain assets, but all others are relinquished to satisfy the costs of bankruptcy and the claims of creditors

Answer 30

Chapter 7 Bankruptcy

Question 31

Under this type of bankruptcy a plan is created under which the debtor will repay outstanding debts within a specified time period--normally three to five years. Sometimes referred to as "wage-earner plan"

Answer 31

Chapter 13 Bankruptcy

Question 32

Under which type of bankruptcy is the debtor generally not required to relinquish assets to discharge debts?

Answer 32

Chapter 13 Bankruptcy

Question 33

The Bankruptcy Act of 2005 provides for the following:

Answer 33

1) Individuals who have the ability to pay their debts are required to file under Chapter 13 (as opposed to having their debts canceled entirely under Chapter 7) 2) Consumer use of Chapter 7 filing is limited to the liquidation of credit card bills or loans that are not secured by a house or the asset 3) Debtors who want to file for Chapter 7 are required to submit to credit counseling before doing so 4) Lenders are required to provide consumer information about the financial dangers of paying only minimum balances on credit card debts

Question 34

For the purposes of filing for bankruptcy, what debts and obligations are NOT generally dischargeable?

Answer 34

- Student and Government Loans - Child Support and Alimony - Recent Federal Income Taxes Due

Question 35

# Fair Credit Reporting Laws The purpose of this act is to have lenders make certain uniform disclosures, enabling the consumer to evaluate credit terms

Answer 35

Consumer Credit Protection Act (Truth in Lending Act)

Question 36

# Fair Credit Reporting Laws Under what act was the establishment of a standard method of calculating and reporting interest? And, what is this interest rate called?

Answer 36

- Consumer Credit Protection Act (Truth in Lending) | - Annual Percentage Rate (APR)

Question 37

# Consumer Credit Protection Act What key disclosures does Regulation Z require?

Answer 37

- APR - When payments begin - Charges for late payments - Prepayment information - Amount Financed - Right of Rescission (Usually 3 days)

Question 38

What major right was established under the Fair Credit Reporting Act?

Answer 38

Access to information -Consumers who have been denied credit must be notified about which credit reporting agency provided information to the potential creditor

Question 39

# Consumer Protection Acts Requires consumers to notify the creditor in writing of any billing errors within 60 days of the date they receive the billing statement

Answer 39

Fair Credit Billing Act

Question 40

# Consumer Protection Acts Prohibits credit discrimination on the basis of: - race, color, religion, national origin, gender, marital status, age, or sexual orientation - the fact that all or part of the applicant's income derives from a public assistance program - the fact that the applicant haas in good faith exercised any right under the Consumer credit Protection Act

Answer 40

The Equal Credit Opportunity Act

Question 41

# Consumer Protection Acts Provides for recovery by those who suffer losses due to a financial institution failing to follow the provisions of the act

Answer 41

Electronic Fund Transfer Act

Question 42

Requires credit bureau reports to include accurate, relevant, and recent information about the financial situation of credit applicants. Also restricts access to credit files only to bon fide users of financial information.

Answer 42

The Consumer Credit Reporting Reform Act (Consumer Credit Reporting Act)

Question 43

# Consumer Protection Acts Prohibits debt collectors from engaging in certain practices, such as contacting a debtor at his place of employment if the employer objects, harassing or intimidating hedebtror, or using false and misleading practices.

Answer 43

The Fair Debt Collection Practices Act

Question 44

# Consumer Protection Acts Enacted to establish fair practices and to enable consumers to better understand their credit transactions.

Answer 44

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act)

Question 45

This act helps to protect the consumer against Identity Theft

Answer 45

The Fair and Accurate Credit Transaction Act of 2003 (FACTA)