Econ Final

Efficient Market Hypothesis

Efficient Market Hypothesis

the hypothesis that prices of stocks fully reflect available information about stocks

portfolio diversification

Reduces risk of losing money by spreading money among a wide array of investments

DJIA (Dow Jones Industrial Average)

a measurement of market price movement for 30 widely held stocks listed on the New York Stock Exchange

S&P 500

index that shows the price changes of 500 different stocks

Put option

the option (no obligation) to sell shares of stock at a specified time in the future

Bear Market

A steady drop in the stock market over a period of time (falling stock prices)

Bull Market

A period of increased stock trading and rising stock prices

futures market

the markets in which participants agree today to buy or sell an asset at some future date

options market

markets where options, including put options and call options, are traded

dividend

Money from the profits of a company that is paid out to its shareholders, typically on a quarterly basis

Advantages of credit

purchasing power, convenience, emergency funds

Disadvantages of credit

overspending, interest and fees, mounting debt, fraud

credit score

A measure of an individual's credit risk; point value of creditworthiness

5 main categories for credit score

-payment history

-total amount you owe

-length of credit history

-credit inquiries

-types of credit in use

ways to improve credit score

-pay bills on time

-keep balances manageable/below limit

-pay the minimum monthly payment

-apply for new credit accounts only if necessary

-don't apply for many accounts all at once

5 Areas for credit scores/number ranges

• Poor (below 580)

• Fair (581-669)

• Good (670-739)

• Very Good (740-799)

• Exceptional (800+)

credit cards

physical cards issued by banks and other credit card companies that allow users to borrow money now and pay it back later

Credit Card Advantages

-convenience

-safety

-purchase protection

-rewards

-history of purchases

-building positive credit

Credit Card Disadvantages

-convenience/overspending

-high interest rates

-annual fees

-penalties

-fraud

APR

Annual percentage rate; the annual rate of interest charged if you have a balance on your credit account

Secured Credit Card

A type of credit card that requires the borrower to pay the company a fixed, up-front amount of money as collateral, which becomes the credit limit of the card, thereby making it low-risk to the credit card company

Gross Income

the total amount of income from wages before any payroll deductions (taxes)

Net Income

total amount of income from wages after payroll deductions (taxes)

401(k) plan

a tax-deferred retirement plan offered to employees by their employer; pulls money from your pre-tax earnings and puts it into your retirement.

IRA

retirement that allows you to direct pre-tax earnings to tax-deferred investments.

Roth IRA

an individual retirement account allowing a person to set aside after-tax income to their retirement; can withdraw contributions easily and these contribution are never taxed again.

Roth 401(k)

a 401 k plan with the investment being a percentage of post-tax earnings and qualified distributions at retirement are received income tax-free (never taxed again)

Simple IRA

an IRA for small businesses in which the employer matches employee contributions

SEP IRA

Mainly for self-employed individuals and small business owners; high maximum contribution limits and contributions made with pre-tax earnings (tax-deductible)

taxes (supply)

taxes decrease supply of product

Stage II of Production

decreasing marginal returns

total cost

fixed costs plus variable costs

fixed costs

costs that do not vary with production or sales level

When are profits maximized?

when marginal revenue equals marginal cost

paradox of value

The situation where some necessities, such as water, have little monetary value, whereas some non-necessities, such as diamonds, have a much higher value.

Capital Goods

Manufactured or constructed items that are used in the production of goods and services

Studying economics helps us

become better decision makers

GDP

Gross Domestic Product- the total market value of all final goods and services produced within country

factors of production

land, labor, capital

price and demand

as price goes up, demand goes down

complements

products that are usually bought together (milk and cereal)

What do advertisements, fashion trends, and new product introductions do?

create consumer demand

inelastic demand

when changes in price have little or no effect on the amount demanded

substitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

The fundamental problem of economics is

The scarcity of resources relative to human wants

What must an object have in order to have value?

have utility

opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

Trade-off

Giving up one thing for another

Most common business organization in U.S

sole proprietorship

Main strength of corporate business organization

ease of raising financial capital

stages of production (order)

increasing returns, diminishing returns, and negative returns

production function

shows the relationship between the quantity of inputs used to produce a good and the quantity of output of that good

need

something essential for survival (water, food, clothes)

standard of living

level of economic prosperity

Bankruptcy

A condition under which a person or corporation is declared unable to pay debts

limited partnership

business organization where one or more partners are not active in the daily running of the business

20/4/10 car rule

• Put a 20% down payment

• Plan to pay off the car in 4 years (48 months)

• Your car payment should be less than 10% of your monthly net income

marginal product

the increase in output that arises from an additional unit of input

"guns vs. butter"

dilemma of where government spending should go (guns= weapons/military; butter = social policy, industries, etc...)

TINSTAAFL

There Is No Such Thing As A Free Lunch; everything has a cost

wealth

a measure of net worth that includes income, property, and other assets (also includes a measure of a person's legacy)

You should keep your credit balance _____ below your credit line

30%

overdraft protection

ensures that your transactions are covered if you have insufficient funds in your account; banks move the amount of money needed from another account into the overdrawn account.

Why do credit card companies want you to have a balance?

To demonstrate that you're an active credit user and to see if you maintain your creditworthiness

3 main credit bureaus

-Experian

-TransUnion

-Equifax

SOFI

3.75% APY, have vaults (makes your savings more organized)

Capital One 360 Savings

3.40% APY; has physical locations/branches so useful if you don't like fully online banking

ALLY Online Savings

3.40% APY; has savings and spending buckets which make it easier to budget

Wealthfront Cash

4.05% APY (highest out of all banks); up to 2M in FDIC insurance!

DISCOVER Online Savings

3.50% APY; 1% Cash Back for debit card purchases

SCHWAB Checking Account

0.45% APY (for checking account); no foreign transaction fees

What is the CA income tax rate for an individual who makes $35,000?

4%

What is the CA income tax rate for an individual who makes $200,000?

9.3%

Top 4 Expenditures of U.S Government

• Social Security (19%)

• Health (15%)

• Income Security (14%)

• National Defense (12%)

Under the 50/30/20 rule, how do you figure out how much should go in your emergency fund?

Add up the cost of your needs and some wants for a month and divide that by 18 months

Type of credit card you should get (not too much spending damage)

Gas credit card