Personal Finance 3- Purchasing power

Matthew 16:26 What good will it be for someone to gain the whole world, yet forfeit their soul? Or what can anyone give in exchange for their soul?
inflation upward movement in the average level of prices. AKA too many dollars chasing too few goods.
As inflation rises, the purchasing power of the dollar ________ falls
Inflation. When demand is high, the prices are _________ high
current inflation rate .2%
To keep up with inflation you must earn ________ to maintain the same standard of living. more
What do people receive annually to keep pace with inflation COLA. cost of living adjustments
Consumer Price Index (CPI) measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services
disinflation occurs when the rate of rising prices slows down. Ex. swimsuits.
reflation occurs when high prices are followed by lower prices and then high prices again. Ex. when gas prices fall, people are more likely to buy trucks.
hyperinflation rapidly rising prices that are out of control (US has never had this)
deflation decrease in prices (ex. Wii, PS3)
Monetary policy refers to the actions by the Fed. to stabilize the economy
Discount rates rate that banks have to borrow money
Federal Funds Rate rate at which banks can borrow from the excess reserves of other banks
Prime Rate rate at which banks charge their customers
who controls rates fed. gov.
Fiscal Policy refers to the actions by the Fed. to manage the economy
how does the government manage the economy (fiscal policy) 1. Gov. raises/lowers taxes2. when taxes go up, people have less money to spend, thus slowing inflation.3. when taxes go down, consumers have more disposable income to spend
causes of inflation Demand-pull, Cost-push, real-cost
demand-pull (higher prices, consumers want to buy more than producers can supply, too many dollars chasing too few goods.)
Cost push raises prices because the cost of producing products goes up
real cost resources scarce, higher demand
effects of inflation higher employment rates, less spending, less saving
how does inflation affect employment 1. Rising prices often mean more people are spending, making businesses busier2. with reduced demand and lower profits, workers may be laid off
how does inflation spending, saving, and investing 1. the time value of money is a concept that say $1 in the future will be less that $1 today. 2. Consumers must consider the expected rate of return when choosing investments
How are Prices Set in a Market Economy 1. Cost Recovery Pricing2. Cost-plus pricing3. Value based pricing4. Market based pricing
cost recovery pricing used to cover R&D costs (research and development
Cost plus pricing calculated using production costs plus a markup
Value based pricing based on what consumers are willing to pay
Market based pricing set to be competitive with similar products
rational buying acting in their own interests based on needs, wants, and logical choices
emotional buying desires; sad, hungry
impulse buying spur of the moment; checkout areas, center aisles
economizing saving money and spending only when necessary; buy as little as possible
optimizing getting the highest value for money spent; purchasing large quantities
2 best strategies for buying and 2 of the worst economizing and optimizing not emotional and impulse
What is the point of putting out displays placing them at key points attracts impulse buying
what results from emotional and impulse buying? buyer’s remorse- regretting a purchase
Selling Strategies Meeting Demand-> Convenience (payment and store location), customer service, the right product and price (meet basic needs, offer brand names, use discount pricing, warranties, etc)
Explain the right product and price 1. Many consumers only want brand names2. store use branding (carrying well known brand names to attract customers who are loyal to those brands)3. Many business offer discount pricing (offering the lowest everyday price)
How to create demand 1. advertising and Banner Ads and Pop-Up Ads
advertising informing consumers about products and encouraging them to buy. Advertising sources: newspapers, magazines, TV, radio, Internet, billboards, signs, direct sales
banner ads and pop up ads the target audience is a specific group of people who are likely to buy
Forms of Direct Advertising 1. Free Samples, coupons in the mail2. Telemarketing is another form of direct selling3. Customer Loyalty Programs. -programs designed to encourage a customer’s repeat business (casey’s pizza, Kohls cash4. Transit Advertising- Print ads or signs appearing on public transportation
How to Shop Smarter 1. prepare a shopping list2. do not let a salesperson influence you3. stick to your list and avoid impulse buying4. shop when you are most alert5. don’t grocery shop on an empty stomach6. Comparison shop among several sellers7. keep receipts, warranties and packaging
Consumer Bill of Rights of 1962 1. safety from unsafe products2. be informed of facts3. choose among different products 4. right to be heard
Airline Passenger Rights 1. confirmed reservations (you will be provided a seat)2. disclosure of taxes and fees3. refunds on canceled tickets4. compensation for “bumping”5. lost luggage (up to $3000)
Consumer Technology Bill of Rights Ok to DVR television (time shifting)Ok to put music on ipods
Patients Bill of Rights (care and medical services 1. choices of providers, access to emergency services
other Consumer’s Protection Laws food, drug, and cosmetic, act; hazardous substances act; Cigarette Labeling and Advertising Act; Nutrition Labeling and Education Act; FERPA; HIPAA
How are consumers defrauded 1. bait and switch2. fake sales3. low-balling4. pyramid schemes5. ponzi scheme6. pigeon drop 7. infomercials
how can consumers protect themselves from fraud 1. shop smart2. be aware of prices3. understand sale terminology4. compute unit prices5. read labels6. check packages carefully7. read contracts8. keep receipts and warranties9. compute total cost10. research businesses (BBB)

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