Economic Business Cycle, Consumer Protection (L4)

Question 1

Economic Environment

Answer 1

Question 2

Demand

Answer 2

• Reflects the Quantity of a good or service that the consumers are willing to purchase
• Price INCREASES ==> Quantity Demand DECREASES
• Price DECREASES ==> Quantity Demand INCREASES
• Change in Price (“Change in Quantity Demanded”) = MOVEMENT along demand curve (NOT Shift)

Question 3

Shift in DEMAND CURVE

Answer 3

Question 4

Supply

Answer 4

• Reflects the Quantity of a good or service that businesses are willing to supply at a given price.
• Price INCREASES ==> Quantity Supply INCREASES
• Price DECREASES ==> Quantity Supply DECREASES
• Change in Price (“Change in Quantity Supplied”) = MOVEMENT along Supply curve (NOT Shift)

Question 5

Shift if SUPPLY CURVE

Answer 5

Question 6

Substitutes

Answer 6

• Products that have similar purposes
• A price change in one product changes the quantity demanded for another product
  ○ EXAMPLE ==> The price for movie tickets increases. Then the
  demand for movie rentals increases as well.

Question 7

Compliments

Answer 7

• Products that are consumed jointly
• A price change in one product changes the quantity demanded for another product
  ○ EXAMPLE ==> If razors are on sale, then the demand for razor
  blade may increase. (They are complementary products)

Question 8

Elastic Demand

Answer 8

• Quantity Demanded responds SIGNIFICANTLY to price changes.
• EXAMPLES:
  ○ Airline tickets
  ○ Movie tickets
  ○ Alcohol
  ○ LUXURY GOODS

Question 9

Inelastic Demand

Answer 9

• Quantity Demanded responded VERY LITTLE to price changes.
• EXAMPLES:
  ○ Milk
  ○ Gas

Question 10

Business Life Cycle (pg. 67)

Answer 10

Question 11

GDP vs. GNP

Answer 11

• Gross Domestic Product (GDP)
  ○ Measures the amount of goods and services produced in the
  US, regardless of ownership
• Gross National Product (GNP)
  ○ Measures the amount of goods and services produced by the
  country’s citizens, regardless of where the goods/services are
  produced.

Question 12

Inflation

Answer 12

Inflation = INCREASE IN PRICES

LOSS of purchasing power

Question 13

Moderate Inflation

Answer 13

Prices are SLOWLY INCREASING. (1-2%)

Question 14

Galloping Inflation

Answer 14

Money loses value VERY QUICKLY

Question 15

Deflation

Answer 15

OPPOSITE of inflation –> prices are falling

Question 16

Disinflation

Answer 16

Decline or slowdown in the rate of inflation

Question 17

Measures of Inflation

Answer 17

• Consumer Price Index (CPI)
  ○ Measures the price change in a basket of goods and services
  at the RETAIL LEVEL.
  ○ Historically 2-3%
• Producer Price Index (PPI)
  ○ Measures price changes in the WHOLESALE and
  MANUFACTURING sectors

Question 18

Economic Indicators

Answer 18

Question 19

Monetary Policy (FED)

Answer 19

Question 20

4 tools used to influence the money supply and interest rates (pg. 72)

Answer 20

Question 21

Fiscal Policy (Congress)

Answer 21

Question 22

3 tools used to influence fiscal policy

Answer 22

Question 23

Yield Curve

Answer 23

• A diagram that plots the current interest rates against the term to maturity for similar securities, such as TREASURIES
• Normal Yield Curve = concave, sloping UPWARD to the right
• Inverted Yield Curve = convex, sloping DOWNWARD to the right
• Fiscal and Monetary Policy will help determine the shape
  ○ EXPANSION (Ease) –> Normal
  ○ CONTRACTION (Tight) –> Inverted

Question 24

Consumer Protection Laws

Answer 24

• Protect “weak” consumers from powerful corporations
• Protect honest businesses from less-than-honest businesses
• FEDERAL TRADE COMMISSION
  ○ Protects both consumers and businesses

Question 25

Fair Credit Reporting

Answer 25

* If a consumer is REFUSED credit or employment based upon information contained in a credit report, the consumer must be provided with the information in the report. * 3 main credit bureaus: ○ Equifax ○ Experian ○ Transunion * Consumers have the right to one free credit report ONCE A YEAR from each of the three bureaus

Question 26

Fair Debt Collection Act

Answer 26

○ Collection telephone called are limited to 8AM-9PM ○ Collectors must contact your attorney if you have an attorney ○ Collection calls are NOT PERMITTED at work if your ER forbids such calls

Question 27

Fair Credit Billing Act

Answer 27

○ Gives a creditor 30 days to acknowledge receipt of billing dispute and explain or correct the error within 90 days ○ A consumer's liability for a lost or stolen credit card is limited to $50 OR the actual amount charged on the card, WHICHEVER IS LESS

Question 28

Truth in Lending Act

Answer 28

○ Lenders must disclose the total cost of financing, INCLUDING the cost of any credit life insurance ○ Interest must be stated in terms of APR ○ Truth in Lending Act is administered by the FED

Question 29

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

Answer 29

○ Card companies must give cardholders 45 days' notice of any interest rates increases ○ Card companies CANNOT charge interest on debt that is paid on time during the grace period ○ A credit card CANNOT be issued to someone under age 21 UNLESS they have a co-signer who is over 21 ○ Late fees are generally LIMITED to $25 ($35 if a payment was missed in the last 6 months)

Question 30

FDIC Insured

Answer 30

Question 31

Bankruptcy Laws

Answer 31

Chapter 7 - provides relief through liquidation Chapter 11 Chapter 13

Question 32

Chapter 7 - provides relief through liquidation

Answer 32

* Debts that are NOT discharged ○ Student and Government loans ○ 3 years of back taxes ○ Alimony and Child support ○ Monies owed due to malicious acts, drunk driving, criminal fines and penalties, or embezzlement ○ Debts related to fraud (negligence = discharged) * Exempt property: ○ Homestead ○ Life insurance ○ Qualified plan * ** Exempt Assets ○ IRAs, up to $1M as indexed every three years. (Inherited NON-Spousal Beneficiary IRA = NO bankruptcy protection, UNLESS trust is named)

Question 33

Chapter 11

Answer 33

Provides relief through reorganization for business or the self-employed

Question 34

Chapter 13

Answer 34

Provides relief through adjusting debts

Question 35

Worker Protection Laws

Answer 35

* Workers' compensation ○ An absolute form of liability ○ Regardless of fault, if injured at work, the EE will collect benefits * Unemployed Compensation ○ Provides moderate income replacement, for specified period of time, if an employee loses his job ○ Insurance premiums are funded by tax on ERs ○ Maximum number of weeks to receive unemployment is 29 with regular benefits lasting up to 26 weeks ○ Additional 13 weeks for periods of high unemployment * Social Security ○ Provides OASDI (Old Age, Survivor and Disability Beliefs) * ERISA ○ Protects retirement plans for EEs

Question 36

Investor Protection Laws

Answer 36

* Securities Act of 1933 ○ Regulates NEW issues of securities in the PRIMARY MARKET ○ NEW Issues = IPO * Securities Act of 1934 ○ Regulates SECONDAY MARKET ○ Established the SEC, whose primary function is to regulate the securities market * Securities Investor Protection Act of 1970 ○ Created SIPC (Securities Investor Protection Corporation) Provided coverage if a BD becomes INSOLVENT or if there is unauthorized trading in an investors account

Question 37

Debt Management

Answer 37

* FICO (Fair Isaac Corporation) ○ Commonly used by lenders to assess potential borrowers CREDIT RISK ○ Score Range from 350 - 850 § Goal is 790 or better ○ 5 factors the affect credit scores: § Payment history (LARGEST FACTORS) § Amount of debt § Length of credit history § New credit § Type of credit