Consumer Economics Final Exam

Economic Systems

Different types of economies in the world

Traditional Economy

-Decisions are based on a society’s values, culture, and customs

-Less likely to accept new ideas or modern technology

-Slow to change

Command Economy

-Economy controlled by central authority (Usually government)

-Determines who produces, what is produced and the price of goods and services

-Lack of consumer choice

Market Economy

-Privately owned businesses compete for profits

-Limited government regulations

-Encourages entrepreneurship

What is a Market Economy also known as?

Free Enterprise

What type of Economy Does The United States Have?

Mixed Economy

Mixed Economy

-Government sets economic policies, tax, spending decisions and money supply

-Government Regulates practices and consumer safety

-Allows entrepreneurs and consumers to drive competition and profit motive as well as supply and demand

-Combines Command regulation and Market competition and supply/demand concepts

What is the one problem that all societies are faced with?

Scarcity

First Economic Response to Scarcity

What will be produced?

Second Economic Response to Scarcity

How will it be produced?

Third Economic Response to Scarcity

Who will get a share in what is produced?

An Economic Indicator

Method used to measure an economic cycle status

Economic Indicators

-Gross Domestic Product (GDP)

-Consumer Price Index (CPI)

-Inflation

-Unemployment

What is the best measure of economic growth?

Gross Domestic Product (GDP)

Gross Domestic Product (GDP)

The value of all goods and services produced by a nation during a specified period of time (Usually 1 year)

Factors calculated in GDP

-Consumer spending

-Business investments

-Exports

-Government spending

Consumer Price Index (CPI)

-Measures the average change in prices over time for selected goods and services

-Price of good/service purchased compared to the previous year

What is CPI also known as

Cost of Living

Inflation

-Overall increase in the price of goods and services

-Decreases the value of the dollar

Unemployment

Percentage of the civilian population without a job but ACTIVELY LOOKING for one

What do low employment rates correlate with?

A more stable economy

The Business Cycle

-Prosperity (Peak)

-Recession (Contraction)

-Depression (Trough)

-Recovery (Expansion)

Peak of the Business Cycle

Prosperity

Prosperity (Peak)

-Highest level of economic activity

-High Production

-Low unemployment

-High GDP

Contraction of the Business Cycle

Recession

Recession (Contraction)

-Noticeable drop in economic activity

-Decrease in demand and profits

-Rise in unemployment

-Decreasing GDP

Trough of the Business Cycle

Depression

Depression (Trough)

-Lowest level of economic activity

-Demand for goods decreases

-Unemployment increases

-Lowest GDP

Expansion of the Business Cycle

Recovery

Recovery (Expansion)

-Overall rise in economic activity

-Unemployment decreases

-New businesses opening

-Increasing GDP

Supply

The amount of product or service producers are willing/able to provide

Demand

The quantity of a product or service that consumers are willing to buy

Law of Supply

Producers choose to sell more of something at a higher price rather than at a lower price for more profit

Law of Demand

-The higher demand for a product, the higher the price goes (Market Price)

-As consumers we’d rather buy more of something at a lower price than a higher price

Maximum Efficiency

The approximate point at which the quantity supplied equals the quantity demanded

Who determines Fiscal Policy

The President and Congress

Who determines Monetary Policy

The Federal Reserve (The Fed)

What is the goal of Monetary and Fiscal Policy

Keep prices and inflation stable and economic growth steady

Fiscal Policy

-If federal income taxes are increased then consumer spending decreases

-If federal income taxes are decreased then consumer spending increases

Monetary Policy

-Reserve Requirements

-Discount Rate

-Open-Market Operations

Reserve Requirements (Monetary Policy)

Banks must keep a certain percentage of the total deposits on hand in cash

Discount Rate (Monetary Policy)

The interest rate The Fed charged banks to borrow money

Open-Market Operations (Monetary Policy)

The Fed buys and sells government bonds

National Debt

The total amount of money that the federal government owes

Deficit Spending

Spending more than you have

Who is responsible for your investments

You

The greater risk

The greater the reward

Conservative Investments

-CD’s

-Savings accounts

-Money Markets

-Government securities (Bond, T-Bills, etc)

High Risk Investments

-Collectibles

-Aggressive stocks

-Property

Diversification

Reduces risk (Usually done through a mutual fund)

Mutual Fund

Collection of different stocks, bonds, etc. managed by a professional

What is one of the “safest” investment strategies

A Mutual Fund

Investment Portfolio

A collection of investments, that is both diversified and well balanced

Stock Exchange

Where you can buy and sell stock

Stock Exchange Examples

-New York Stock Exchange (NYSE)

-Chicago Board of Trade

-NASDAQ

Index

Indicator that determines how well the economy is doing

Indexes

-DOW Jones

-NASDAQ Composite

-Standard and Poor’s 500

Bull Market

Lengthy period when stock prices rise

Bear Market

Lengthy period when stock prices fall

How long do bull and bear markets last

At least 6 months

Where do you establish an IRA

Through a broker/bank

IRA

-Retirement investment

-No need for a company to set up

-Pre or Post tax dollar options

-Roth and Traditional

What is the max contribution for an IRA

$6000

What is a 401K based around

Company based

401K

- Retirement Investment

-Company matches your contributions

-Pre tax dollars used

-Taxed when you withdraw

Max investment for a 401K

$19000

When can you withdraw for a 401K and IRA

59 ½

When does the money go in for a Roth IRA

After tax

When does the money go in for a Traditional IRA

Pre tax

Roth IRA

-Will pay less tax overall

-Withdrawals after 59 ½ are tax free

-Good for early investors

Traditional IRA

-Receive tax deduction for contributions made

-Taxed withdrawals at 59 ½

Where can you get Roth and Traditional IRA’s

A bank or investment firm

Stocks are more _______ than bonds

Volatile

Bonds are less _____ than stocks

Liquid

What is the first number at the bottom left of a check?

Routing/Bank number

What is the second number at the bottom left of a check?

Account number

What is the line above the account number and routing and number?

The memo line

What is the stamp/line above the memo line

The Drawee (Bank)

Payee

Person who the check is written to

Drawer

Person who wrote the check

Drawee

The bank

Endorsement

Your signature on the back of a check

Blank Endorsements

Where you only sign your name

Special Endorsement

“Pay to the order of…”

When do you use a blank endorsment?

If you want to receive your check as cash directly from the bank

When do you use a special endorsement

If you want to give your check to a third part so that they can deposit it into their account

Restrictive Endorsement

“For Deposit only…”

When do you use a restrictive endorsement?

If you want to make sure your check only goes into your checking account (Specifically for when you are depositing your check electronically)

What is reconciliation also known as?

Balancing your checkbook

Reconciliation

Matching the amount of money you say you have with the amount of money the bank says you have

What do you need to reconcile your account?

Your bank statement and your checkbook register

What does your Bank Statement Include?

A record of all withdrawals, deposits, interest and fees

Federal Deposit Insurance Corporation

FDIC

FDIC

Agency that protects bank customers by insuring deposits

Goal of the FDIC

Maintain consumer and business confidence in the banking system

How much insurance coverage does the FDIC provide

Up to $250,000

Money Market Account

-A type of account offered by banks and credit unions

-Insured by the FDIC

-Pays interest rates based on the current interest rates in the money markets

-Very liquid and safe

Certificate of Deposite

CD

CD’s

-Issued by a bank to a person depositing money for a specified length of time

-Provides an interest rate premium in exchange for leaving a deposit untouched for a predetermined period of time

Money Management

The process of planning how to get the most from your money