Mod 7: The Economic Environment and Consumer Protection Laws Flashcards
The study of how individuals and companies make decisions to allocate scarce resources, which helps in understanding how individuals and companies prioritize their wants
Microeconomics
The study of an economy as a whole
Macroeconomics
The responsiveness of the quantity of a good demanded to changes in price, all other economic forces remaining constant
Price Elasticity
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
Gross Domestic Product (GDP)
GDP Formula
GDP = C + I + G + NE
C=consumption
I=investment
G=government spending
NE=net exports
Who makes fiscal policy decisions?
The federal government
What 2 tools does are available to the federal government to implement policy changes?
1) Making changes in tax laws
2) Increasing and decreasing government spending
Fiscal Policy
Often involves increasing government spending or reducing taxes for individuals and/or businesses
Expansionary Policy
Fiscal Policy
Commonly incorporates decreases to government spending and/or increases to individual and/or business taxes
Contractionary Policy
What 3 major tools are available to the Federal Reserve to enact monetary policy?
1) Reserve Requirements for Banks
2) Discount Rate that Banks Pay for Short-Term Loans from the Fed
3) Open Market Operations
The rate at which banks can borrow from any of the Federal Reserve Banks
The Discount Rate
What is the only interest rate that the Fed directly controls?
The Discount Rate
What two interest rates does the Fed greatly influence (or greatly controls)?
1) Federal Funds Rate
2) Prime Rate
The interest rate charged on short-term borrowing between banks (often overnight to fulfill reserve requirements)
The Federal Funds Rate
The rate of interest charged by commercial banks to their best business and personal customers. (normally about 3% higher than the federal funds rate)
Prime Rate
Reflects movements in economic activity and illustrates the concepts of supply and demand
The business cycle
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
Recession
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
Depression
Economic indicator that tends to precede actual economic change
LEADING Indicator
Economic indicator that occurs simultaneously during the business cycle and confirms the stage that the economy is currently experiencing
COINCIDENT Indicator
Economic indicator that usually changes after the economy has passed through one business cycle and allows confirmation of a previous economic environment
LAGGING or CONFIRMING Indicator
Economic Indicators
Leading Indicator Examples (6)
- 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
Economic Indicators
Coincident Indicator Examples (3)
- Industrial Production
- Level of Personal Income
- Amount of Corporate Profits
Economic Indicators
Lagging or Confirming Indicators Examples (4)
- Prime Interest Rates
- Changes in CPI, particularly for services
- Amount of Business and Consumer Loans Outstanding
- Average Duration of Unemployment
What are the two most common measures of inflation?
1) Consumer Price Index (CPI)
2) Producer Price Index (PPI)
Produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services
CPI Program
Measures the average change over time in the selling prices received by domestic producers for their output
PPI Program
An investment strategy for a deflationary period
- Preservation of capital should be the primary concern
- Investments should center on very high-quality debt instruments
When prices are still rising, but at a declining rate
Disinflation
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
Chapter 7 Bankruptcy
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”
Chapter 13 Bankruptcy
Under which type of bankruptcy is the debtor generally not required to relinquish assets to discharge debts?
Chapter 13 Bankruptcy
The Bankruptcy Act of 2005 provides for the following:
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
For the purposes of filing for bankruptcy, what debts and obligations are NOT generally dischargeable?
- Student and Government Loans
- Child Support and Alimony
- Recent Federal Income Taxes Due
Fair Credit Reporting Laws
The purpose of this act is to have lenders make certain uniform disclosures, enabling the consumer to evaluate credit terms
Consumer Credit Protection Act (Truth in Lending Act)
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?
- Consumer Credit Protection Act (Truth in Lending)
- Annual Percentage Rate (APR)
Consumer Credit Protection Act
What key disclosures does Regulation Z require?
- APR
- When payments begin
- Charges for late payments
- Prepayment information
- Amount Financed
- Right of Rescission (Usually 3 days)
What major right was established under the Fair Credit Reporting Act?
Access to information
-Consumers who have been denied credit must be notified about which credit reporting agency provided information to the potential creditor
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
Fair Credit Billing Act
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
The Equal Credit Opportunity Act
Consumer Protection Acts
Provides for recovery by those who suffer losses due to a financial institution failing to follow the provisions of the act
Electronic Fund Transfer Act
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.
The Consumer Credit Reporting Reform Act (Consumer Credit Reporting Act)
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.
The Fair Debt Collection Practices Act
Consumer Protection Acts
Enacted to establish fair practices and to enable consumers to better understand their credit transactions.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act)
This act helps to protect the consumer against Identity Theft
The Fair and Accurate Credit Transaction Act of 2003 (FACTA)
