Macro Midterm Study Guide PDF

Macro midterm study guide: What are the different types of taxes? Proportional: When the average tax rate remains the same regardless of the size of income. (When everyone pays the same PORTION not AMOUNT of taxes regardless of the income) Example: US property tax Progressive: If the tax rate inc...

Macro midterm study guide: What are the different types of taxes? Proportional: When the average tax rate remains the same regardless of the size of income. (When everyone pays the same PORTION not AMOUNT of taxes regardless of the income) Example: US property tax Progressive: If the tax rate increases as income increases. Based on the idea that those who can pay more, should. And those who can't shouldn't have to. Example: Current income tax system Regressive: Tax on consumption-> the more you save, the less taxes you pay. The average tax rate declines as income increases. Example: The US sales tax What is the difference between simple and compound interest? Simple interest means you are only paying interest on the original amount that you borrow. Compound interest is what your credit card charges- but the amount you pay grows. (it compounds) What is the difference between fixed and variable interest? Fixed interest stays the same for the entire life of the loan. Variables can change at any time- but legally not more than 30%. What is amortization? amortization is an accounting technique that involves: Periodically lowering the book value of a loan or an intangible asset over a set period of time Spreading out loan payments over time. Decreasing the value of an intangible asset gradually Reflecting the actual value of an asset or liability over its lifespan What is a pay stub? A pay stub is given to employees along with their paychecks. The stub is something the employee can use to confirm what funds were withheld from the gross pay that led to the final net pay amount. What is the most important part of a person’s credit report in FICO? Payment history- Whether you pay on time or late. Paying your bills on time is the biggest determining factor of your credit score. What is the purpose of insurance? Insurance is asset protection, shared liability, and an overall reduced risk What is shared liability? Shared liability refers to a model in which all the parties in a lawsuit are equally responsible for paying damages. It is a liability that is shared by co-owners or joint tortfeasors when they have acted in concert, owe the same duty to the plaintiff, have a legal relationship, or otherwise together have caused an injury to the plaintiff. Joint liability allows parties to share the risks associated with taking on debt and to protect themselves in the event of lawsuits. In a shared liability accident, both parties share some of the fault. What is an interest rate? Interest rates are a measure of the cost of a loan to a borrower. Typically expressed as a percentage, an interest rate is applied to the outstanding balance of a loan at regular intervals. Interest rates can vary broadly from product to product and from borrower to borrower. What does APR stand for? Annual Percentage Rate- the yearly interest rate charged or earned on a loan or investment. What GA program pays for all college tuition? What is the difference between a chapter 7 and a chapter 13 bankruptcy? Chapter 7 (Liquidation Bankruptcy): ○ Involves the sale (liquidation) of non-exempt assets to pay off creditors. ○ Typically takes a few months to complete. ○ Discharges most unsecured debts (e.g., credit cards, medical bills). ○ Eligibility is based on income; those with high income may not qualify.  Chapter 13 (Reorganization Bankruptcy): ○ Allows individuals to keep assets while repaying debts over a 3-5 year period through a court-approved repayment plan. ○ Debts are reorganized and paid according to income and ability to pay. ○ Suitable for individuals with steady income who need to restructure their finances. ○ Typically results in partial debt forgiveness. In summary, Chapter 7 focuses on liquidating assets and discharging debt, while Chapter 13 involves creating a repayment plan to manage and reduce debt over time. What is net pay? The amount of money that you actually take home after payroll deductions. What is gross pay? Gross pay refers to the total wages or salary an employee made before any deductions are made. How do you calculate a person's net worth? Your net worth is quite simply the sum total of your assets minus to the total of your liabilities If your liabilities exceed your assets, your net worth is negative. FICA includes deductions for which government program? Social security and medicare programs (medicare and medicaid) What is the difference between a bank and a credit union? Banks provide services such as direct deposits, online banking, and loans to anyone who is looking for their services. Credit unions only provide services to their members. Also, banks are businesses and credit unions are nonprofit organizations Which characteristic of a bond distinguishes it from a share of stock? Bonds- could be thought of as an I>O>U between the lender and borrower that includes the details of the loan and it’s payments The characteristic that distinguishes a bond from a share of stock is ownership vs. debt: A bond represents debt. When you purchase a bond, you are essentially lending money to the issuer (such as a corporation or government), and in return, the issuer promises to pay you  periodic interest (called the coupon) and to repay the principal amount (the face value) when the bond matures. A share of stock represents ownership in a company. When you buy stock, you are purchasing a small ownership stake in the company, which may entitle you to dividends and voting rights in shareholder meetings, but you do not have a guaranteed return or repayment like you do with bonds. In summary, bonds are debt instruments, while stocks represent equity (ownership) in a company. What is the biggest difference between stocks and mutual funds? Mutual funds- A company that brings together money from many people and invests it in stocks, bonds, or other assets. The biggest difference between stocks and mutual funds is that stocks represent ownership in a single company, while mutual funds represent pools of investments in various assets, typically including a mix of stocks, bonds, and other securities. Stocks: When you buy a stock, you are purchasing a share of a single company's ownership. Your investment's value depends on the performance of that specific company, and you take on the associated risks and rewards directly. Mutual Funds: A mutual fund is a managed investment vehicle that pools money from many investors to buy a diversified portfolio of assets, including stocks, bonds, and other investments. This provides instant diversification and professional management, reducing the risk compared to owning individual stocks. What is the difference between Roth and traditional IRA’s? Traditional IRA’s- the money is withdrawn before you pay taxes. You pay taxes on the money when it is withdrawn. Roth IRA- Individual retirement account. The roth IRA allows you to pay taxes on your contributed money today and withdraw in the future tax-free What does it mean to diversify your investments? Diversifying your investments means spreading your money across a variety of different assets, such as stocks, bonds, real estate, and other investment types, in order to reduce the overall risk of your investment portfolio. What is the highest possible credit score? 850 What is an insurance premium? is the amount of money you pay to an insurance company in exchange for coverage. It is typically paid on a regular basis (e.g., monthly, quarterly, or annually) to maintain an active insurance policy. What is the relationship between insurance premiums and deduction? A deductible is the amount you must pay out-of-pocket before your insurance coverage kicks in for a claim. An insurance premium is the amount you pay regularly to maintain your policy. If you choose a higher deductible, you're agreeing to pay more out-of-pocket in the event of a claim. This reduces the insurer's risk because they are less likely to have to pay for small claims, so they charge you a lower premium. Conversely, if you choose a lower deductible, the insurer takes on more risk, as they will have to pay more in the event of a claim. To compensate for this increased risk, they charge you a higher premium. In summary, there's a trade-off: a higher deductible reduces your premium cost, but it means you'll pay more in the event of a claim, while a lower deductible increases your premium but reduces your out-of-pocket costs when you make a claim.