Macro Midterm Study Guide

Macro Midterm Study Guide

• Types of Taxes:

  • Proportional: The tax rate remains the same regardless of income. Example: US property tax
  • Progressive: The tax rate increases as income increases. Example: Current US income tax system
  • Regressive: The tax rate declines as income increases; taxes on consumption. Example: US sales tax

• Simple vs. Compound Interest:

  • Simple Interest: Interest is calculated only on the principal amount borrowed.
  • Compound Interest: Interest is calculated on the principal and accumulated interest.

• Fixed vs. Variable Interest:

  • Fixed Interest: Interest rate remains constant throughout the life of the loan.
  • Variable Interest: Interest rate can change over time. Legally, it can't change more than 30%.

• Amortization:

  • Definition: An accounting method that gradually reduces the book value of a loan or intangible asset over time.
  • Components:
    • Periodically lowers the asset's book value over a set period.
    • Spreads out loan payments over time.
    • Decreases the value of an intangible asset gradually.
    • Reflects the actual value of an asset or liability over its entire life.

• Pay Stub:

  • A document provided to employees with their paychecks.
  • Used to confirm deductions and the net pay amount.

• Credit Reports/FICO Scores:

  • Payment history is the most important factor in determining a person's credit score.

• Insurance Purpose:

  • Asset protection
  • Shared liability reduction
  • Risk reduction

• Shared Liability:

  • A model where all parties involved in a lawsuit share responsibility for damages.

• Interest Rate:

  • A measure of the cost of a loan to a borrower expressed as a percentage.
  • Applies to the outstanding loan balance over regular periods.
  • Varies widely based on product and borrower characteristics.

• APR:

  • Stands for Annual Percentage Rate.
  • The yearly interest rate charged or earned on a loan or investment.

• College Tuition Programs:

  • Details on specific programs are missing

• Chapter 7 vs. Chapter 13 Bankruptcy:

  • Chapter 7 (Liquidation):
    • Selling non-exempt assets to repay creditors.
    • Usually a few months long.
    • Discharges most unsecured debts.
    • Eligibility based on income.
  • Chapter 13 (Reorganization):
    • Keeps assets while repaying debts over 3-5 years.
    • Reorganizes debts based on income and ability to pay.
    • Suitable for individuals needing to restructure finances.
    • Partial debt forgiveness is possible.

• Net Pay: Money received after all deductions.

• Gross Pay: Total wages or salary before deductions.

• Net Worth: Total assets minus total liabilities.

• FICA:

  • Federal Insurance Contributions Act includes social security and Medicare programs.

• Banks vs. Credit Unions:

  • Banks serve anyone seeking their services while credit unions are for members only.
  • Banks are businesses; credit unions are non-profits.

• Bond vs. Stock:

  • Bond: Debt; issuer repays principal and interest.
  • Stock: Ownership; no guaranteed return.

• Mutual Funds vs. Stocks:

  • Mutual Funds: Pool of investments (stocks, bonds,etc.); offering diversification and professional management
  • Stocks: Investment in single company's ownership; directly tied to company performance.

• Roth vs. Traditional IRA:

  • Traditional IRA: Deductible contributions; taxed at withdrawal
  • Roth IRA: Non-deductible contributions; tax-free withdrawals

• Investment Diversification:

  • Spreading investments across different asset types to reduce overall risk.

• Highest Credit Score: 850

• Insurance Premium: Regular payment for insurance coverage.

• Deductible: Amount an insured needs to pay out-of-pocket before insurance pays.