Module 7

Which of the following is NOT characteristic of the Consumer Credit Reporting Act? A) Credit bureau reports must include accurate, relevant, and recent information. B) Protection against unauthorized credit card use is provided. C) Access to a credit file is limited to bona fide users of financial information. D) Applicants who are denied credit must be offered the reason.

B

Which of the following statements regarding demand is CORRECT? Generally, the higher the price level, the lower the level of demand. The demand curve is usually represented as sloping upward from left to right.

Generally, the higher the price level, the lower the level of demand.

Which of the following statements regarding supply is CORRECT? Generally, the higher the price that can be obtained, the higher the quantity supplied. The supply curve is usually represented as sloping downward from left to right.

Generally, the higher the price that can be obtained, the higher the quantity supplied.

Dave is planning to refinance his mortgage with a local bank. While meeting with his banker, he is given a loan packet detailing the amount to be financed, the annual percentage rate (APR), and the loan's terms and conditions. What legislation requires the bank to disclose this information to Dave?

The Consumer Credit Protection Act

The demand curve shows that

demand for a product varies inversely with price.

If the demand for an item changes greatly when its price changes, the item is considered

elastic

Inflation typically begins increasing during which phase of the business cycle?

expansion to peak Inflation is growing most rapidly as the business cycle approaches its peak. Inflation typically begins decreasing as the business cycle moves from peak to trough.

Purposes of the Federal Reserve include: establishing the prime rate. influencing and monitoring the flow of capital. establishing federal income tax rates. maintaining steady economic growth with moderate inflation.

influencing and monitoring the flow of capital. maintaining steady economic growth with moderate inflation.

If the central monetary authorities want to slow the rate of inflation, the central bank should

raise the discount rate to reduce the money supply; this will cause interest rates to rise and loan demand to fall, thereby decreasing demand for goods and services.

Which of the following confirms the current state of the economy?

unemployment rate

Under the bankruptcy laws, which of the following will NOT be discharged? Credit card debt used to pay college tuition (within the past three years) Taxes from four years ago in which the taxpayer purposely failed to report $10,000 of self-employment income Alimony

Credit card debt used to pay college tuition (within the past three years) Taxes from four years ago in which the taxpayer purposely failed to report $10,000 of self-employment income

If the Consumer Price Index (CPI) is down but consumer demand is up, the economy is likely in which stage of the business cycle?

Recovery to expansion

Which of the following claims will NOT be discharged in bankruptcy? A) All of these claims will be discharged B) A claim brought by a secured creditor that remains unsatisfied after the sale of the collateral C) A claim brought by a judgment creditor whose judgment resulted from the debtor's negligent operation of a motor vehicle D) A claim that arises from alimony or maintenance other than a lump-sum property settlement

d

Which of the following are measures of the Fair and Accurate Credit Transaction Act (FACTA) that provides consumers greater protection against identity theft? 1. Consumer information must be disposed of by companies in a secure manner. 2. Individuals can place alerts on their credit histories if identity theft is suspected. 3. Consumers can place alerts on their credit histories if deploying overseas in the military. 4. Consumers may obtain a free credit report every 12 months from each of the three national credit reporting agencies.

All FACTA added new sections to the federal Fair Credit Reporting Act to provide consumers greater protection against identity theft.

Which of the following statements on economic indicators is CORRECT? 1. Changes in CPI, particularly for services, serve as a confirming indicator and usually change after the economy has passed through one business cycle and allow confirmation of a previous economic environment. 2. Indexes of stock prices, serve as a leading indicator, and tend to precede actual economic change.

Both Changes in CPI are considered confirming, or lagging indicators, while indexes of stock prices serve as a leading indicator.

The type of bankruptcy in which a person is freed from most debts in exchange for giving creditors assets that legally may be seized is called

Ch 7 Bankruptcy Chapter 11 applies mostly to businesses and Chapter 13 is one in which a plan is created for the debtor to repay outstanding debts within a specified time period.

In a typical business cycle, which of the following phases would exhibit periods of increasing employment and increasing output?

Expansion An expansion is indicated by rising employment and output. When employment and output are no longer rising, the cycle is at its peak. If employment and output begin to decrease, this indicates a recession. Finally, when employment and output are no longer decreasing, the cycle has reached a trough.

Which of the following protections is not provided by the Fair Credit Reporting Act? A) The consumer is given the right to review his or her report at any time free of charge. B) If a consumer is denied credit, he or she has the right to receive a copy of the credit report provided by the credit bureau free of charge. C) If the consumer and credit bureau do not agree regarding the facts contained in the report, the consumer has the right to include his or her version of the facts in the report. D) If there are errors in the report, the bureau must correct them and, if requested by the consumer, submit the corrected report to any recipient of the report in the last six months.

a) The consumer is given the right to review his or her report at any time free of charge. A consumer who is denied credit has the right to receive a copy of the credit report provided by the credit bureau free of charge. However, the consumer may review his or her report at any time for a nominal charge, not for free. The credit bureau must correct errors in the credit report and submit the corrected report to any recipient of the report in the last six months. Where the consumer and the credit bureau do not agree regarding the facts contained in the credit report, the consumer is permitted to include his or her version of the facts in the report.

All of the following statements regarding the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the 2005 Bankruptcy Act) are correct except A) debtors who want to file for Chapter 7 must first undergo credit counseling. B) the use of Chapter 7 is limited to the liquidation of credit bills or loans that are not secured. C) people who have the ability to pay their debts can choose between filing under Chapter 7 or filing under Chapter 13. D) lenders must provide consumer information about the dangers of paying only minimum required payments on credit card debt.

c) people who have the ability to pay their debts can choose between filing under Chapter 7 or filing under Chapter 13. Under the 2005 Bankruptcy Act, people who have the ability to pay their debts must file under Chapter 13 (reorganization) rather than having their debts canceled entirely under Chapter 7.

Which of the following occurs when the price of a product decreases and consumers buy more of that product?

A change in quantity demanded has taken place.

You subscribe to Barron's and have noticed that the money supply has been increasing sharply on a weekly basis. Your advisor informs you that the Federal Reserve Board is responsible for the money supply growth. What are the tools the Fed uses to influence the money supply? 1. Changing tax policy 2. Changing the discount rate 3. Buying or selling securities 4. Changing bank reserve requirements

II, III, and IV The Federal Reserve Board may use open-market operations, changes in the discount rate, or changes in the reserve requirement to affect the money supply. Only Congress changes tax policy.

Which of the following obligations could possibly be reduced or eliminated in a personal bankruptcy?

Installment payments Installment payments could potentially be reduced or eliminated in a personal bankruptcy. Student loans and IRS tax obligations will not be eliminated through bankruptcy. 401(k) loans will not be eliminated through bankruptcy because the lienholder is the client. If the client defaults on the 401(k) loan, the entire loan will be taxable as a distribution immediately.

Landry Plumbing, Inc., filed for bankruptcy under the reorganization provisions of Chapter 11 of the Federal Bankruptcy Code. A plan of reorganization was confirmed, and a final decree closing the proceedings was entered. Which of the following statements is CORRECT?

Landry Plumbing, Inc., will have negotiated with all creditors, except as otherwise provided in the plan and applicable law.

Recently, Congress has been pursuing deficit spending policies. In addition, the Federal Reserve is considering decreasing the discount rate and entering the open market to purchase existing Treasury securities. If these alternatives are pursued, what is the likely effect, if any, on the amount of bank loans?

Lending activity will increase.

What is the term used to describe the Federal Reserve's controlling the money supply, enabling it to significantly affect interest rates?

Monetary policy The Fed will follow an easy, expansionary policy when it wishes to increase the money supply and ultimately decrease interest rates and use a tight, restrictive policy when it wishes to decrease the money supply and ultimately increase interest rates.

Which of these might cause an increase in supply? A decrease in productivity Fewer sellers in the marketplace More efficient technology A decrease in government subsidies

More efficient technology

Which of the following economic activities represents an example of monetary policy?

The discount rate is increased. Bank reserve requirements are lowered by the Federal Reserve. The Federal Open Market Committee sells securities.

Which of the following items may be discharged in a Chapter 7 bankruptcy?

Tort claim for negligence(nonintentional) Consumer debt

With respect to business cycles, the classic definition of a recession is

a decrease in real GDP for two consecutive quarters. The classic definition of a recession is when GDP has experienced a decrease in real terms for two consecutive quarters or a minimum of six months from a baseline of zero.

All of the following are likely decline in value during a deflationary period except a) bond prices b) precious metals c) real estate d) collectibles

a) bond prices. Bond prices rise and purchasing power increases during deflation. A deflationary period can be a time during which real assets perform poorly, thus real estate, collectibles, and gold and other precious metals are likely to fall in value.

Which of the following are measures of the Fair and Accurate Credit Transaction Act (FACTA) that provides consumers greater protection against identity theft?

Consumer information must be disposed of by companies in a secure manner. Individuals can place alerts on their credit histories if identity theft is suspected. Consumers can place alerts on their credit histories if deploying overseas in the military. Consumers may obtain a free credit report every 12 months from each of the three national credit reporting agencies.

Which of the following interest rates is directly controlled by the Federal Reserve Board?

Discount rate

The Fair Debt Collection Practices Act does not allow debt collectors to engage in all of the following practices except A) contacting a debtor at his place of employment if the employer objects. B) seeking a court order for wage garnishment to satisfy a legal judgment. C) harassing or intimidating a debtor or using false and misleading approaches. D) contacting third parties about the payment of the debt without court authorization.

B

Which of the following is NOT a state law exemption found in Chapter 7 of the Federal Bankruptcy Code?

Child support ARE exemptions: A) An exemption for one's homestead B) Some limited amount of personal property D) Pension and retirement plan rights (ERISA plans)

Which of the following is a provision of the Bankruptcy Act of 2005? Debtors who want to file for Chapter 7 bankruptcy are first required to submit to credit counseling. Individuals who have the ability to pay their debts are required to file under Chapter 7 of the Federal Bankruptcy Code.

Debtors who want to file for Chapter 7 bankruptcy are first required to submit to credit counseling.

Which of these assets are generally exempt from creditor claims in a Chapter 7 bankruptcy?

Disability income benefits Proceeds from any annuity contracts

Which of the following best describes stagflation?

Occurs when inflation and unemployment rise and the general growth of the economy is slow as business output falls

If the Consumer Price Index (CPI) is up and consumer demand is down, the economy is likely in which stage of the business cycle?

Peak to contraction

Under the laws of most states, which of the following is exempt from creditors in a Chapter 7 bankruptcy?

Pension benefits

Which of the following are methods of protecting against identify theft? Monitoring bank accounts Regularly inspecting credit reports Reviewing financial and billing statements Closing accounts that appear to have suspicious activity

all

Which of these describes why changes in supply occur? Changes in the cost of inputs Changes in productivity Changes in technology Changes in taxes

all

If the demand for a product is inelastic, it means that

an increase in the price would lead to an increase in the total amount spent on purchases of the product. Theoretically, if a product exhibits inelastic demand characteristics, an increase in the price would lead to an increase in the total amount spent to purchase the product.

If the Federal Reserve Board (Fed) wants to expand economic activity, it may

buy government securities, thus increasing the money supply and driving down overall interest rates. The answer is buy government securities, thus increasing the money supply and driving down overall interest rates. If the Fed wants to expand economic activity, it may put more money into the economy by purchasing government securities. This action will decrease interest rates, thus stimulating the economy.

The Federal Reserve can take all of the following actions if it wants to follow a restrictive monetary policy except

lower income tax rates. correct: A) raise the discount rate. B) sell government securities. D) raise the reserve requirement.

The federal funds rate will tend to move upward under which of the following conditions?

A few banks have excess reserves, and the rest have significant reserve deficiencies. Short-term interest rates increase when the money supply is being tightened. Among the reasons why the money supply is tight is when banks are unable to meet their reserve requirements and must borrow from the Fed. If the banks have excess liquidity, then monetary policy is accommodative. When the Fed buys government securities or lowers the discount rate, it is increasing the money supply and interest rates will decrease.

All of the following are likely decline in value during a deflationary period

A) collectibles. C) precious metals. D) real estate.

Which of the following is NOT a state law exemption found in Chapter 7 of the Federal Bankruptcy Code? A) Child support B) Pension and retirement plan rights (ERISA plans) C) An exemption for one's homestead D) Some limited amount of personal property

A) Child support Other state law exemptions include the existing cash value of any life insurance policies, the proceeds of any annuity contracts, disability income benefits, and property that is held as tenants by the entirety.

All of the following are examples of leading economic indicators except A) orders for durable goods. B) industrial production. C) housing starts. D) bond yields.

B) industrial production. Leading indicators are those that tend to precede actual economic change, such as changes in investor sentiment. Industrial production is an example of a coincident indicator that occurs simultaneously during the business cycle and confirms the stage the economy is currently experiencing.

When the Federal Reserve buys government securities, which one of the following results is most likely to occur?

Bond and stock prices will rise. When the Fed buys securities, it receives paper evidencing debt owed to it from the federal government, and it transfers cash to the sellers of those securities. This increases the money supply, causes interest rates to decrease and bond prices to rise, and encourages consumers and businesses to borrow money for purchases. The increasing demand for goods and services, in turn, causes stock prices to increase.

Which of the following statements on economic indicators is CORRECT?

Changes in CPI, particularly for services, serve as a confirming indicator and usually change after the economy has passed through one business cycle and allow confirmation of a previous economic environment. Indexes of stock prices, serve as a leading indicator, and tend to precede actual economic change.

Which term refers to the taxation, expenditures, and debt management of the federal government?

Fiscal policy Economic growth, price stability, and full employment are goals the government pursues through fiscal policy

Which of the following situations illustrate an inelastic supply or demand?

Gasoline sales decline slightly as gas prices rise 30%. The sharply rising price of corn causes grocery store cereal sales to decline less than 1%.

Which of the following situations illustrate an inelastic supply or demand? 1. Gasoline sales decline slightly as gas prices rise 30%. 2. Yacht sales decline sharply shortly after the federal government initiates a luxury tax on boats costing more than $30,000. 3. The sharply rising price of corn causes grocery store cereal sales to decline less than 1%. 4. Shirley's Cakes lowers the price of its cakes by 10% and sees a 20% increase in volume.

I and III Luxury goods tend to have elastic demands, and necessities tend to have inelastic demands. Supply and demand is inelastic if the ratio of the percentage change in quantity divided by the percentage change in price is less than one; it is elastic if the ratio is greater than one.

Which of the following are included among the tools available to the Federal Reserve (the Fed) to accomplish its responsibilities?

Open market operations Taxation Discount rate Reserve requirement The Fed does not control fiscal policy, which includes taxation decisions; those decisions are made by Congress and approved by the president. In addition to open market operations and the discount rate, the Fed also controls bank reserve requirements. Debt used in its capital structure.

Which of the following statements is true concerning bankruptcy?

Planners can rely on state laws to supersede federal laws in regard to property retention. Planners should rely on state laws versus federal laws for property retention. Debtors may be required to relinquish royalties.

Which of the following types of information must be included in loan documents under Regulation Z of the Truth in Lending law?

Prepayment information Charges for late payments Right of rescission Other required information includes when payments begin, the amount financed, and the annual percentage rate.

Which of the following best describes deflation?

Prices are falling in absolute terms, bond prices rise, and purchasing power increases

Which of the following are characteristics of Chapter 13 bankruptcy provisions?

Repayment plan is implemented. The debtor is typically not required to relinquish assets. Debt payments may be reduced so payments are more manageable for the debtor.

The Fair Debt Collection Practices Act prohibits debt collectors from engaging in all of the following practices except A) contacting third parties about the payment of the debt without court authorization. B) contacting a debtor at his place of employment if the employer objects. C) seeking a court order for wage garnishment to satisfy a legal judgment. D) harassing or intimidating a debtor or using false and misleading approaches.

c

The primary function of the Federal Reserve System (the Fed) is to

carry out monetary policy. The Federal Reserve controls the money supply, enabling it to significantly affect interest rates. The Fed will follow a loose, or easy, monetary policy when it wants to increase the money supply to expand the levels of income and employment. In times of inflation, when it wants to constrict the money supply, the Fed will follow a tight monetary policy. The U.S. Treasury issues bonds to the general public to finance the budget deficits of the federal government.

The type of bankruptcy in which a person is freed from most debts in exchange for giving creditors assets that legally may be seized is called

ch 7 bankruptcy Chapter 13 bankruptcy is one in which a plan is created for the debtor to repay outstanding debts within a specified time period. Frequently, the amount owed is reduced so that payments will be manageable.

Deflation is:

characterized by rising unemployment. caused by a reduction in the money supply. the opposite of inflation.

All of the following economic activities represent government fiscal policy except A) increasing marginal income tax rates. B) cutting the discount rate. C) reducing marginal income tax rates. D) increase purchases of goods and services.

cutting the discount rate.

When prices are still rising (but at a declining rate), this is known as

disinflation.

An increase in the general level of prices is

inflation The rate of change in the general price level is the rate of inflation. Disinflation indicates a decline in the rate of inflation. Deflation is a decline in the general price level. Stagflation occurs when inflation and unemployment rise and the general growth of the economy is slow as business output falls.

The responsiveness of the quantity demanded of a good to changes in the good's price, other things being held constant, is called

price elasticity. A good is elastic when its quantity demanded responds greatly to price changes (e.g., luxury items) and is inelastic when its quantity demanded responds little to price changes (e.g., food).

Which of the following situations is an example of where your knowledge of consumer protection laws could benefit clients?

A) A client tells you they have lost their wallet and are concerned that it may have been stolen. B) A client's son has been having difficulty getting a job. He goes for interviews, but after a background check, he is not being hired. C) A client tells you about her credit being denied, and she doesn't know why.

Your client, a single person with no dependents, comes to you and inquires about the possibility of filing for Chapter 7 bankruptcy. Under the laws of most states, which of the following items is exempt from creditors?

Accrued pension benefits Under most states' laws, pension benefits are exempt from creditors once an individual files for bankruptcy. Although a homestead may be exempt, there is usually a cap or ceiling on the value of the home that may be protected.