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GTPR Flashcards > Fundamentals & Insurance: Economics and Consumer Protection > Flashcards

Fundamentals & Insurance: Economics and Consumer Protection Flashcards

1
Q

“Loosening” policy

A

directly leads to an economic expansion

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2
Q

“Tightening” Policy

A

directly leads to an economic slowdown

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3
Q

Demand

A

reflects the Q of a good or service that consumers are willing to buy. Heavily dependent on P. as P increases, consumers demand less. As P decreases, consumers demand more.

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4
Q

Quantity Demanded

A

how much consumers are willing to demand at certain P levels. Any time there is a change in P, it’s a movement along the D curve = change in Q demanded.

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5
Q

Shift in Demand Curve

A

creates a change in D due to an increase/decrease in:

  • income
  • taxes
  • savings rate
  • disposable income

Anything that causes discretionary income to increase will shift the demand curve up and to the right.
Anything that causes discretionary income to decrease will shift the demand curve down and to the left.

SIT Down = Shift in Demand

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6
Q

Supply

A

reflects to Q of a good or service that businesses are willing to supply at a given P. The higher the P, the more suppliers are willing to supply. The lower the P, the less suppliers are willing to supply.

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7
Q

Change in Quantity Supplied

A

anytime there is a change in P, there is a movement along the S curve due to a P change, which is called a change in Q Supplied. as P decreases, firms are inclined to supply less. As P increases, firms are inclined to supply more.

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8
Q

Shifts in the Supply Curve

A

The supply curve will shift to the left/right because of a change in:

  • technology
  • competition
  • anything other than P

Anything that causes production to improve will shift the supply curve down and to the right
Anything that causes an increase in production costs or supply to decrease, the supply curve will shift up and to the left.

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9
Q

Substitutes

A

“similar” purpose. As P change in one product changes the Q demanded for another product. P and D move together.

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10
Q

Complements

A

Products that are consumed jointly. A P change in one product changes the Q demanded for another product. Peanut butter and jelly.

As P increases, D decreases and vice versa

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11
Q

Elastic Demand

A

Demand curve is almost horizontal. Examples include airline tix, alcohol, luxury goods. Q Demanded responds significantly to changes in P.

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12
Q

Inelastic Demand

A

Q Demanded changes very little to changes in P. Cigs, gasoline, insulin. An inelastic demand curve is almost vertical “I”.

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13
Q

Business Lifecycle

A

Expansion, peak, recession/contraction, trough

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14
Q

Components within a Business cycle

A

see picture

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15
Q

Expansion

A

characterized by increasing GDP, inflation and interest rates. Unemployment is decreasing. Investments should be in ST bonds and equities

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16
Q

Peak

A

characterized by GDP being at its highest. Inflation and interest rates are peaking, and unemployment is at its lowest level. Since interest rates are increasing to cut off inflation, bonds, preferred stock, and other high-duration or fixed income assets should be sold. Equities and hard assets, such as gold and real estate tend to perform well in this environment.

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17
Q

Contraction/Recession

A

characterized by GDP slowing, inflation and interest rates are also beginning to decline, the unemployment rate begins to increase during the contraction phase. Equities and hard assets should be sold and reinvested into ST cash and bonds until the market settles out.

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18
Q

Trough

A

characterized by GDP, inflation, and interest rates being at their lowest levels, unemployment is at its highest, high-duration bonds will tend to perform well as bond yields drop and interest rates continue to fall. Stock purchases late in the cycle should be considered if valuations seem appropriate

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19
Q

GDP

A

measures the amount of goods and services produced in the US, regardless of ownership

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20
Q

GNP

A

measures the amount of goods and services produced by a country’s citizens, regardless of where the goods and services are produced

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21
Q

Recession

A

consists of 6 consecutive months (2 quarters) of declining GDP

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22
Q

Depression

A

Recession becomes a depression if the recession lasts 18 months (6 consecutive quarters)

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23
Q

moderate inflation

A

1-2%/year

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24
Q

Galloping Inflation

A

when money loses value very quickly

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25
Q

deflation

A

when prices are falling, during this period, people prefer to hold cash bc it becomes more valuable, as it can buy more goods and services as Prices decrease

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26
Q

Disinflation

A

a decline or slowdown in the rate of inflation

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27
Q

CPI

A

measures the P change in a basket of goods and services at the retail level. Historically 2-3%.

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28
Q

PPI

A

measures price changes in the wholesale and manufacturing sectors

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29
Q

Leading Economic indicators

A
  • anticipate changes in the economy
  • initial unemployment claims
  • stock prices
  • money supply
  • new manufacturing orders
  • new private housing units
  • consumer sentiment
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30
Q

coincident indicators

A 
- change along with changes in the business cycle
employees on payroll
personal income
industrial production
manufacturing sales
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31
Q

Lagging Indicators

A 
- summarize or "confirm" past performance
avg duration of unemployment
change in the CPI
change in labor cost per unit
consumer credit to income
value of outstanding loans
avg prime rate charged by banks
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32
Q

Monetary Policy

A

means by which the Fed Reserve controls the money supply and influences interest rates

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33
Q

Federal Reserves 3 main goals

A
  1. LT economic Growth
  2. maintain price levels supported by the economy
  3. maintain full employment
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34
Q

Ease monetary policy

A
  • increasing money supply and decreasing interest rates
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35
Q

Tighten Monetary Policy

A

decreasing money supply and increasing interest rates

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36
Q

4 tools federal reserve uses to influence the money supply and interest rates:

A
  1. Reserve Requirement
  2. Discount Rate
  3. Open market operations
  4. Excess Reserves
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37
Q

Reserve Requirement

A

is a % of deposits a bank must maintain in cash
as the RR increases, there’s less cash available to lend, the MS decreases and int rates increase
As the RR decreases, there’s more cash available to lend, the MS increases and int rates decrease

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38
Q

Discount rate

A

the overnight interest rate at which member banks can borrow from the Fed Res to meet their RR
As the DR increases, ST interest rates increase
As the DR decreases, ST interest rates decrease

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39
Q

Fed Funds Rate

A

the overnight borrowing rate between member banks

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40
Q

Open market ops

A

as the Fed Res buys/sells gov securities, the MS is influenced and places pressure on interest rates
As the Fed Res buys treasuries, MS increases and int rates decrease
As the Fed Res sells treasuries, MS decreases and int rates increase

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41
Q

Excess Reserves

A

monies that a bank holds at the Fed Res in excess of the required reserve amount

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42
Q

Fiscal Policy

A

means by which Congress controls spending and taxation, which influences the MS and interest rates

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43
Q

Congresses 3 fiscal policy goals:

A
  1. maintain economic growth
  2. maintain P stability
  3. maintain full employment
44
Q

Congresses 3 tools to influence fiscal policy

A
  1. tax
  2. spend
  3. debt management
45
Q

taxation

A

increasing tax rates will reduce money available for spending, increasing interest rates
decreasing tax rates will increase money available for spending, decreasing interest rates

46
Q

spending

A

through gov spending, congress can increase the MS, decreasing interest rates.
congress can cut spending, increasing interest rates

47
Q

debt management

A

deficit spending is when congress spends more than tax revenues that are collected
because of deficit spending, congress must borrow to continue spending.
as congress borrows more, the amount of dollars available to be lent decreases, and it places increasing pressure on interest rates

48
Q

Yield curve

A

plots the current interest rates against the term to maturity for similar securities, such as treasuries

49
Q

normal yield curve

A

concave, sloping up

expansionary policy from both fiscal and monetary

50
Q

Inverted Yield curve

A

Convex and sloping downwards

contractionary policy from both fiscal and monetary

51
Q

Consumer Protection Laws

A

protect weak consumers from powerful corporations

help protect honest businesses from less-honest businesses

52
Q

Fair Credit Reporting Act

A

if a consumer is refused credit or employment based upon info contained in a credit report, the consumer must be provided with the info in the report
Equifax, Experian, Transunion
Consumers have the right to 1 free credit report once a year from each of the 3 bureaus

53
Q

Fair Debt Collection Act

A

collectors must contact your attorney if you have one

are not allowed to call your work if your employer forbids such calls

54
Q

Fair Credit Billing Act

A

gives a creditor 30 days to acknowledge receipt of a billing dispute and explain or correct the error within 90 days
consumers liability for a lost or stolen credit card is limited to $50 or the actual amt on the card, whichever is less

55
Q

Chapter 7 Bankruptcy

A

Provides relief through liquidation

56
Q

Chapter 11 Bankruptcy

A

Provides relief through reorganization for businesses or the self-employed

57
Q

Chapter 13 Bankruptcy

A

Provides relief through adjusting debts

58
Q

Traditional and Roth IRA Protection Amount from bankruptcy

A

$1,362,800

59
Q

Debt that is not discharged through chapter 7 bankruptcy

A
  • student and gov loans
  • 3 years of back taxes
  • alimony and child support
  • monies owed to malicious acts, drunk driving, criminal fines and penalties or embezzlement
60
Q

unemployment

A
  • premiums are funded by a tax on employers
  • max # of weeks to receive is 39 w/regular benefits lasting up to 26 weeks
    (the additional 13 weeks is for periods of high unemployment)
61
Q

Social Security

A
  • provides old age, survivor and disability benefits (OASDI)

form of “public” insurance funded by payroll taxes on wages earned and self-employment income

62
Q

Securities Act of 1933

A
  • regulates new issues of securities in primary market

- consists of IPOs

63
Q

Securities Act of 1934

A
  • regulates secondary markets

- constitutes the buying/selling of securities that were previously sold in the primary market

64
Q

Securities Investor Protection Act of 1970

A
  • created SIPC

- provides coverage if a BD becomes insolvent or if there is unauthorized trading in an investors account

65
Q

5 factors that effect credit scores:

A
  • payment history (largest factor)
  • amount of debt
  • length of credit history
  • new credit
  • type of credit
66
Q

Federal Programs available for crisis events

A
  • Special education programs
  • social security benefits
  • benefits for disabled vets
67
Q

State and Local programs available for crisis events

A
  • residential services
  • transportation services
  • respite care services
  • family support services
  • day program services employment services
68
Q

Attitudes and beliefs consist of:

A
  • risk tolerance levels
  • savings and consumption habits
  • view on employment, retirement, and leisure time
  • attitude towards gov
69
Q

9 - Confidentially and privacy

A
  • 1+ written docs
  • for ordinary biz purposes (opening accounts, placing trades)
  • for legal and enforcement issues (defend against wrongdoing, audits, subpoena)
70
Q

Fiduciary Duty

A

Duty of loyalty + duty of care + duty to follow instructions

71
Q

Duty of loyalty

A
  • Clients interests first

- Avoid conflicts of interest

72
Q

Duty of Care

A
  • Act with care, skill, prudence, diligence
73
Q

Duty to Follow Instructions

A
  • Must follow client instructions BUT must comply with clients stated objectives
74
Q

5 - Disclose and Manage Conflicts of Interes

A
  • Disclose conflicts (Compensation, limited product set, proprietary funds, referrals)
  • Manage conflicts (set up business to avoid conflicts of interest)
75
Q

10 - Provide information to a client

A
  • Delivery method differs when providing Financial Advice or Financial Planning
    ( privacy doc must be in writing for financial advice, conflicts of interest can be oral for financial planning)
76
Q

Financial Advice

A

Provided in writing:
- privacy policy

Provided ORALLY or in writing:

77
Q

Financial Planning

A

Provided in writing:

Provided ORALLY or in writing:
- material conflicts of interest

78
Q

Public discipline or bakruptcy

A
  • Disclose on: FINRA (brokercheck), SEC, and CFP.net for 10 years
79
Q

Update Annually

A
  • ADV

- Privacy

80
Q

Financial Advice Definition

A
81
Q

Changes in consumer demand

A
  • changes in consumer tastes, advertising, news reports, trends and seasons
  • changes in consumer income
  • changes in the price of substitutes products
82
Q

Client’s cash flow

A
  • Income Statement
83
Q

Federal authorrities govern insurance industry through:

A
  • IRC
  • SEC
  • ERISA
84
Q

2 common defenses used against charges of negligence:

A
  • contributory negligence

- assumption of risk

85
Q

Reformation

A
  • when both parties agree to rectify the situation
86
Q

Rescission

A
  • occurs when no agreement can be reached and is usually carried out by a court of law
87
Q

absolute liability

A
  • where someone has undertaken activities/actions that bring about extraordinarily hazardous circumstances
88
Q

Res Ipsa Loquitor

A
  • the thing speaks for itself - no need to prove negligence
89
Q

Parol Evidence Rule

A
  • when a contract is in written form, all previous and prior understandings of a verbal contract will not be allowed to contradict the written contract
90
Q

Estoppel

A
  • if a right has been waived, the company will be stopped from denying the claim
91
Q

Waiver Provision

A
  • the company reps cannot change the contract
92
Q

comparative negligence

A
  • allocates negligence and loss proportionately
93
Q

Fully insured group health insurance plan

A
  • benefits from a comprehensive medical plan are always TF to the EE
94
Q

HMO model under which the subscribers have the greatest flexibility

A
  • the Individual Practice Association IPA Model
95
Q

mandatory provisions for health insurance policy

A
  • grace period and reinstatement
96
Q

HMO

A
  • AKA the “network” model
97
Q

IPA Model

A
  • type of HMO org that is made up of physicians who have their own office locations
98
Q

All HMO’s have these

A
  • gatekeepers
99
Q

Qualified Tuition Plan (QTP)

A
  • 529 Plans
100
Q

Balance Sheet LIABILITIES should be recorded at their

A
  • current outstanding balance
101
Q

which step is a CFP planner in if they have prepped financial statements and conducted ratio analysis

A
  • Analyzing the clients current course of action and potential alternative courses of action
102
Q

Necessary to identify the clients lifecycle position

A
  • marital status, dependents, income level, net worth
103
Q

42 USC Sec1396

A
  • used to hold assets that are owned by the beneficiary, such as from a lawsuit or inheritance
104
Q

FAFSA Assets do not include:

A

A personal residence

Life insurance

Retirement plans (401(k) plans, pension funds, annuities, IRAs, Keogh plans, etc.)

105
Q

FAFSA Assets include:

A

Money in cash, savings, and checking accounts

Businesses

Investment farms

Real estate (other than a personal residence)

Other investments

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