Cengage Personal Finance – Complete Textbook
Summary and Study Guide | Key Concepts, Chapter
Overviews, and Practical Applications
Buisness cycle steps
1. Expansion.
2. Peak.
3. Contraction.
4. Trough.
Recession signs
Economic decline of 2% that lasts for 10+ months, average unemployment rate exceeds 6%.
Procyclical economic indicator
econ indicator that moves in the same direction as the economy.
Gross Domestic Product (GDP)
the market value of all final goods and services produced within a country. reported every
quarter.
countercyclical economic indicators
moves in opposite direction of economy
Stagflation
a period of slow economic growth and high unemployment (stagnation) while prices rise
(inflation).
Consumer Price Index (CPI)
measures inflation. measured through urban households.
real income
reflects the purchasing power of money
nominal income
direct dollar amounts.
Rule of 70
,A method for determining the number of years it will take for some measure to double, given its
annual percentage increase. Example: To determine the number of years it will take for the price
level to double, divide 70 by the annual rate of inflation.
federal funds rate
short term rate at which banks lend funds to other banks so they have mandated reserves.
the Fed's overall economy goals
-2% inflation rate.
-3% interest rate.
-5% unemployment rate.
marginal cost
the cost of producing one more unit of a good
marginal tax rate
rate at which last dollar earned is taxed. highest tax bracket your in.
tax-sheltered income
income that is either tax exempt or tax deferred.
Simple Interest Formula
I=PRT (Interest = Principal x Rate x Time)
Future Value Formula
FV=PV(1+i)^n
discounting
reducing future values to present values
cafeteria plan
employees offered choice between taxable cash or at least 1 non-taxable benefit.
fee-based
Charge up front fee for providing services, charge commission on securities or insurance
purchases.
fee offset
Fre reduced by any commissions earned off the purchase of financial products sold.
, fee-only
Earns no commission and works solely on fee-for-service basis.
balance sheet
aka net worth statement. assets, liabilities, and net worth of an individual on a specific date.
insolvent
negative net worth
cash flow statement
aka income and expense statement. income, expenses, surplus / deficit.
liquidity ratio
monetary assets / monthly expenses.
-Ideal: 3-6 months
assets to debt ratio
total assets / total debts.
-Ideal: high.
debt to income ratio
(annual debt repayments/gross income) x 100.
-Ideal: 36% or less
debt payments to disposable income
monthly non-housing debt payments / monthly disposable income.
-Ideal: 14% or less.
investment assets to total assets ratio
investment assets / total assets.
-Ideal: 10: in 20's.
11-30: in 30's.
31+: older adults
Budgeting steps
1. set financial goals.
Summary and Study Guide | Key Concepts, Chapter
Overviews, and Practical Applications
Buisness cycle steps
1. Expansion.
2. Peak.
3. Contraction.
4. Trough.
Recession signs
Economic decline of 2% that lasts for 10+ months, average unemployment rate exceeds 6%.
Procyclical economic indicator
econ indicator that moves in the same direction as the economy.
Gross Domestic Product (GDP)
the market value of all final goods and services produced within a country. reported every
quarter.
countercyclical economic indicators
moves in opposite direction of economy
Stagflation
a period of slow economic growth and high unemployment (stagnation) while prices rise
(inflation).
Consumer Price Index (CPI)
measures inflation. measured through urban households.
real income
reflects the purchasing power of money
nominal income
direct dollar amounts.
Rule of 70
,A method for determining the number of years it will take for some measure to double, given its
annual percentage increase. Example: To determine the number of years it will take for the price
level to double, divide 70 by the annual rate of inflation.
federal funds rate
short term rate at which banks lend funds to other banks so they have mandated reserves.
the Fed's overall economy goals
-2% inflation rate.
-3% interest rate.
-5% unemployment rate.
marginal cost
the cost of producing one more unit of a good
marginal tax rate
rate at which last dollar earned is taxed. highest tax bracket your in.
tax-sheltered income
income that is either tax exempt or tax deferred.
Simple Interest Formula
I=PRT (Interest = Principal x Rate x Time)
Future Value Formula
FV=PV(1+i)^n
discounting
reducing future values to present values
cafeteria plan
employees offered choice between taxable cash or at least 1 non-taxable benefit.
fee-based
Charge up front fee for providing services, charge commission on securities or insurance
purchases.
fee offset
Fre reduced by any commissions earned off the purchase of financial products sold.
, fee-only
Earns no commission and works solely on fee-for-service basis.
balance sheet
aka net worth statement. assets, liabilities, and net worth of an individual on a specific date.
insolvent
negative net worth
cash flow statement
aka income and expense statement. income, expenses, surplus / deficit.
liquidity ratio
monetary assets / monthly expenses.
-Ideal: 3-6 months
assets to debt ratio
total assets / total debts.
-Ideal: high.
debt to income ratio
(annual debt repayments/gross income) x 100.
-Ideal: 36% or less
debt payments to disposable income
monthly non-housing debt payments / monthly disposable income.
-Ideal: 14% or less.
investment assets to total assets ratio
investment assets / total assets.
-Ideal: 10: in 20's.
11-30: in 30's.
31+: older adults
Budgeting steps
1. set financial goals.
