What is Supply?
Supply is the amount of a good or Service available for purchase by suppliers at a agiven price. In general the higher the price that can be obtained, the higher the quantity supplied.
The Supply curve
Slopes upward from left to right, with the price being measured on the vertical axis and the quantity supplied being gauged on the horizontal axis.
Shift is Supply curve
With a change in price, there is also a corresponding movement along the supply curve. Example - If ABC Company manufactures printers and cameras and the price of printers increases, resulting in a higher profit margin, ABC company may choose to reduce the supply of cameras and increase the supply of printers to take advantage of increased profits. Thus the supply curve of cameras would shift left.
What is demand?
Demand is the quantity of goods and services consumers want to purchases at a given price. Generally, the higher the level of price the lower the level of demand.
The Demand Curve
Slopes downwards from left to right with price being measured on the vertical axis and quantity being measured on the horizontal axis.
What is the substitution effect?
When the price of a good rises, consumers substitute other similar lower priced goods for it. This is known as the substitution effect.
What is the Income effect?
When the price of a good rises, consumers will discontinue or significantly reduce their use of it, unless their incomes are also rising at a comparable pace.
Shift in Demand Curve
Change in factors other than price may influence the quantitiy demanded at any given price. Example - if it is reported that prices of a product are expected to rise, today's demand may increase due to anticiipation of a price increase.
What is price elasticity?
the responsiveness of the quantity of a good demanded to changes in the goods price, all other economic forces remaining constant. Goods differ in there elasticity in relation to price. Demand for necessities such and food, or gasoline repond relatively little to price changes; therefore, those types of goods are said to be inelastic in nature. Alternatively, demand for luxuries, such as a new boat, responds relatively more to price changes; therefore, those types of goods are said to be elastice or demonstrate a great deal of price elasticity.
What is equilibrium?
The intersection of the supply and demand curve. Prices should always move to equilibrium unless restricted by outside sources such as government regulation, or by collusion between manufacturers as is the case with cartels.
Define GDP (Gross Domestic Product)
Gross Domestic Products is the total market value of all goods and services produced within the domestice united states over a given year, including income generated domestically by a foreign firm. (E.G. Toyota). GDP is measured in constant dollars, which translates into real GDP after accounting for inflation.
Define GNP (Gross National Product)
Gross National Product is the total market value of all goods and services produced by US residents labor and property. Unlike GDP, which defines production based on a geopraphical location of production, GNP measures production based on ownership.
Define Monetary Policy
Conducted by the Federal Reserve Board (The Fed) and attempts to affect economic activity by raising and lowering short term interest rates because they affect consumer spending, or demand.
Define Fiscal Policy
Conducted by Congress and also attempts to influence consumer demand but does so through governmental policies.
Dicuss the three major tools of Monetary policy used by the Fed
-Lowering or increasing the amount of required reserves that must be held by banking members of the Federal Reserve System -Raising or lowering the Fed's discount rate (the amount of interest that is charged by one of the 12 federal reserve banks to other banks) -engaging in open market operations, which is the buying or selling of government securites in the open marketplace by the federal reserve board. ***OPEN MARKET OPERATIONS is the most important and frequently practiced by the Fed.
Define the acronym BEST
Buy - Easy Sell - Tight -if the Fed want to expand economic activity, it will buy additional government securites, thereby increasing the money supply and driving down overall interest rates. -If the Fed wantd to contract econimic activity, it wil sell government securities from existing inventory, therefore decreasing the money supply, driving up overall interest rates, and resulting in reduction of prices.
What is the Discount Rate?
The only rate that the Fed directly controls. This is the rate at which bank can borrow from any Federal Reserve Banks. When the Fed raises the discount rate it increases the borrowing ocsts and discourages member banks from borrowing funds, resulting in the contraction of money supply. When the Fed lowers the discount rate banks are able to borrow funds at lower rates and tend to lend more money thus increasing the money in circulation and stimulating demand.
What is the Federal Funds Rate?
The Fed does not directly control. The interest rate charged in short term borrowing (often overnight to fulfill reserve requirements) between banks.
What is the Prime Rate?
The fed does not directly control. The rate of interest charged by commercial banks to its best business and personal customers. This rate is set directly by the commercial bank lending its money and is normally about 3 percentage points higher than the fed funds rate.
Congress's two Fiscal policy tools
The power to spend and the power to tax
Economic Evironment - Expansion vs. Contraction Factor Movement Chart
Economic Environment - Peak Vs. Trough Factor movement
What is the classic definition of a recession?
A recession occurs when GDP has experienced a decrease in real terms for two consecutive quarters ro a minimum of 6 months from a baseline of zero.
Define the classic definition of a depression
A depression occurs when GDP has experienced a decrease in real tems for 6 consecutive quarters or a minimum of 18 months from a baseline of zero.
Leading indicators are those that tend to precede actual economic change. Give some examples of leading indicators.
New claims for unemployment
orders for durable goods
changes in investor sentiment
Coincident indicators are those that occur simultaneously during the business cycle and confirm the stage that the economy is currenlty experiencing. List the coincident indicators.
level of personal income
amoutn of corporate profits
Lagging or confirming indicators are those that usually change after the economy has passed through one business cycle and is in another. Give examples of lagging indicators.
Prime rates of interest
Change in Consumer Price Index (CPI) particularly for services
Amount of business and consumer loans outstanding
Average duration of unemployment
Inflation denotes and increase in the general level of prices. Inflation increases the cost of buying a home, durable goods and consumption goods
Define the rate of inflation
the rate of change in the general price level
Indicates a decline in the rate of inflation
The declien in the general price level and is often caused by a reduction in money supply and consumer demand. It is characterized by a surplus of goods and a shortage fo cash.
Stagflation occurs when inflation and unemployment rise and the general growth of the economy is slow as business outputs falls.
Example : 1970's when rapidly rising oil prices causes sonsumern prices to rise sharply and caused business to cut back production.
What is a yield curve?
the yield curve shows the relationship between the yields on short term and long term bonds of the same investment grade. As most often the case, long term rates are higher than short term rates. In this scenerio, the yield curve will slant upwards from left to right with yield represented on the vertical axis and maturity represented on the horizontal axis.
What are the two reasons for higher yields on longer term bonds?
1. Investors expect interest rates to rise. Therefore, if an investor is willing to long in an interest rate now, he should be compensated for the anticipated rise in rates.
2. Greate risk to the investor. Risk premium should be paid becasue with longer maturities, negative events that influence the investment return might occur.
What is the definition of a contact?
A legally enforceable, binding agreement between two or more parties to perform, or not perform, some specific activity in exchange for lawful consideration.
What are the 5 basic elements of a contact?
An agreement, including an offer by one fo the contract parties and the acceptance by the other party
Consideration for the agreement, which is the meaningful value probided or promised to be provided
Mutual understanding, or a meetin of the mnds, in the creation of the contract.
Contractual capacity, which means both parties are considered legally competent. (a minor, intoxicated person, or mentaly incompetent person are not considered to have legal competence)
Legal purpose, which regers to the fact that the subject of the contract must be both legal and not in violation of public policy.
Describe a void contract.
A contract drawn up for illgal purpose is not a legal contract at all and cannot be legally enforced. As such a void contract does not impose any legal obligation on parties signing the contract.
Describe a voidable contract.
A contract that is mand by a minor is a valid contract but may be voided at the option of one or both parties. This is the reason why commercial businesses such as banks will not enter into a contract witha child who has not yet reached the legal age of majority.
What are the 5 essential duties an agent owes a principal?
What are the 4 duties a principal owes an agent?
Reimbursement and indemnification, if necessary
Safe Working conditions
Describe Chapter 13 Bankruptcy.
Involves the adjustment of debts of an individual with regualr income.
Payments are typically restructured and in some cases reduces so the payments are more manageable.
The debtor is not generally required to relinquish any assets in payment of creditors.
Describe Chapter 7 Bankruptcy
Historically the most popular type of bankruptcy filed because an individuals personal unsecured debts are generally canceled.
Greatly reduced filings due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Permits the debtor to claim either federal or state exemptions.
State law exemtions generally include the following
Exemption for ones homestead
some limited personal property
pension and retirement plans
existing cash value of life insurance policies
proceeds from any annuity contracts
disability income benefits
preperty held as tentants by entirety
Federal exemptions include the following
Federal Civil Service retirement benefits
The following debts are not dischargable
Student and government loans
child support and/or alimony obligations
recent federal income taxes due
- Exemption for ones homestead
- some limited personal property
- pension and retirement plans
- existing cash value of life insurance policies
- proceeds from any annuity contracts
- disability income benefits
- preperty held as tentants by entirety
- Federal Civil Service retirement benefits
- railroad pensions
- veterans benefits
- Student and government loans
- child support and/or alimony obligations
- recent federal income taxes due
Describe Chapter 11 Bankruptcy.
Reorganization of debt
Any idividual, business or corporate debtor who is eligible for chapter 7 liquidation is also eligible for chapter 11 bankruptcy.
The debtor remains in possesion and may continue to operate the debtors business
Describe the important provision of the Bankrupcy Abuse Prevention and Consumer protection act of 2005.
Individuals who have the ability to pay debt a required to file chapter 13.
Consumer use of Chapter 7 filinf is limited ot the liuidation of credit card bills or loans not secured by a house or other asset
Debtors who want to file for Chapter 7 are required to submit to credit counseling before doing so
Lenders are required to provide consumer information about the financial dangers of paying on minimum balances on credit cards
Important legislation for credit protection
Consumer credit protection act - requires lenders before extending credit to disclose both the dollar amount of finance charges and the annual APR. Also limits the liability for lost or stolen credit card to the lesser of amount charged or $50 per card.
Fair Credit Billing Act - Reqires consumers to notify the creditor in writing of any billing errors within 60 days. The creditor then has 30 days to respond to the consumer and 90 days to resolve the complaint.
Consumer Credit Reporting Reform act - Requires credit bureau reports to include accurate relevant and recent information. Restricts access to credit files to only bona fide users of financial information. Applicants that are denided credit must be told why. Must also be given the name and address of the reporting credit agency.
Equal Credit Opportunity Act - Prohibits credit discrimination on the basis of gender or matital status. Prohibist potential creditors from asking questions about applicatins child bearing plans. Lenders must use same standard in assessing income for men and women and must include alimony and child support in income.
Fair Debt collection practices Act - Prohibits debt collectors from contacting a debtor at there palce of employment if the employer objects, harassing or intimidating the debtor or using false misleading approaches. A state court may issue an order for garnishment of portion of debtors wages.
Credit card accountability responsibility and disclosure act of 2009. (CARD Act) - Establishes fair practives regarding credit cards. Including limits on increases in the interest rate on existing balances. Enhanced consurmer notification procedures before changes can be made by the issuer of the card.