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35 Cards in this Set

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  • Back
What are the six stages of the financial planning process?
Establishing the client's financial goals and objectives and defining the relationship between the planner and the client
Gathering data
Processing and analyzing information
Recommending the plan
Implementing the plan
Monitoring the plan
What are the advantages/disadvantages of using a directive approach in an interview?
Provides measurable data

Does not allow interviewee input as to topics
What are the advantages/disadvantages of using a non-directive approach in an interview?
More in-depth responses are gathered
Closer relationship between parties is established

Is more time consuming
Generates subjective data which may be difficult to evaluate
What are the five basic physical attributes associated with physical attention?
S - Face the other person Squarely.

O - Adopt an Open posture.

L - Lean toward the other person.

E - Maintain good Eye contact.

R - Be Relaxed while attending
Describe the M1 concept
M1 - Coins and currency in circulation plus personal demand deposits in banks and other financial institutions. (This is the most liquid measure)
Describe the M2 concept
M2 - Represents the aggregate total of all money in circulation, including M1 plus saving accounts in savings institutions; traveler's checks and most money market accounts. (M2 is generally 4 times as large as M1.)
Describe the M3 concept
M3 - Includes M2 plus institutional money market funds large denomination time deposits and certain less spendable assets such as repurchase agreements.
discount rate
the borrowing rate from the Federal Reserve
Fed Funds Rate
the lending rate BETWEEN member banks
amount of money seller is willing to accept in exchange for given quantity of good or service (e.g. $1.00 per gallon)
is the increasing of the general level of prices and services over time. The end result is a drop in purchasing power. Its most common measure is CPI (Consumer Price Index), published monthly by the Bureau of Labor Statistics. It is important to note that not only individual consumers, but also businesses, government agencies and foreign markets are impacted by rising price levels.
the opposite of inflation, and occurs when the general level of prices is falling.
occurs when the overall level of prices continues to rise, but its growth rate is slowing. The most likely time to observe this trend is during a recession.
occurs when inflation is extremely pronounced (such as in 1923 Germany when prices skyrocketed more than 2000% in one month).
The Consumer Price Index
a weighted average measuring the changes in the prices paid for goods and services by consumers for a specific time period. It does not include every item that an individual consumer might use, but instead measures a sampling of several hundred goods and services.
Interest Rate
the price of money.
Discount Rate
the interest rate charged by the Fed on a loan that it makes to a member bank
Nominal Interest Rate
measures the yield in dollars per year per dollar invested.
How is the Real Interest Rate determined?
determined by adjusting the nominal interest rate for the rate of inflation
What economic cycle does this describe?: Declining demand for goods and services
Decreased production
Prices begin to decline
Industrial output and industrial production will fall
Businesses cut back on inventory and production
Capacity utilization declines

Labor productivity increases; efficiency improves
Unit labor costs fall
Wages may fall
Lower costs of production
Lower prices
Increased consumer purchasing power, leading to increased demand
The recovery has begun!
Trough to Recovery
WhatWhat economic cycle does this describe?: Economic activity increases
Employment and incomes are up
Consumer sentiment improves
Spending increases
Profits increase early on
Wages, interest rates lag behind costs
Labor productivity remains high
Business expenditures on inventory and capital increase
Interest rates remain low
Prices begin to rise
Inventories increase/lagging wages catch up
Expansion begins to lose momentum
Recovery to Expansion
What economic cycle does this describe?: Demand remains strong
Temporary shortages
Lagging costs and wages catch up with prices
As limits on monetary expansion are reached, interest rates rise
Inventories and capital goods expenditures continue to rise
Costs continue to rise
Profits begin to decline
Interest rates begin to rise
Expansion to Peak
What economic cycle does this describe?: Psychological factors come into play
Prices begin to fall/profits are squeezed
Costs and wages are slow to fall/lag behind prices
Declines in production and employment
Inventory liquidation
Peak to Contraction
Substitution effect
As the cost of a certain product increases, consumers tend to substitute another similar product.
Income effect
As the cost rises further, consumers may simply reduce consumption.
Market Equilibrium
is said to exist at the price and quantity where Supply and Demand are in balance.
Price Elasticity
the responsiveness of the quantity demanded to changes in the product's price (all other things being the same).
When is a product considered elastic?
if its quantity demanded responds greatly to price changes.
When is a product considered inelastic?
when its quantity demanded responds little to price changes.
What is believed to be the main determinant of quality of life?
standard of living with wealth playing an important part
Average propensity to consume
The percentage of each dollar of income that is spent currently, rather than saved or how much we spend of what we make
Fiscal policy
used to stimulate or slow economic activity
monetary policy
Controls the amount of money in circulation
Consumer Price Index a measure of inflation based on the changes in the cost of a market basket of consumer goods and services
Gross Domestic Product the total of all goods and services produced by workers located within a country. It is used to measure economic growth