AP Economics Personal Finance Final

If you have $50 in a savings account for one year at an interest rate of 6%, how much interest will you earn at the end of the year?

$3

Suzy backs her car into a metal fence, causing $500 of damage to her car. Suzy has an auto insurance policy with a $200 deductible. To get her car fixed, how much will her auto insurance company pay?

$300

If you divide the interest paid into 72, the result will tell you how many years it will take for the amount initially saved to double is you receive compound interest. At a compound interest rate of 10 percent, how many years will it take you to double your money?

7.2 years

Which is the best description of comprehensive coverage in an auto insurance policy?

It covers the cost of damage to an auto as a result of fire, theft, or storm

Which is the best description of collision coverage in an auto insurance policy?

It provides for the repair and replacement of the policyholder's car if it is damaged in an accident

Which of the following is a reason to save?

Your parents place a dollar into your savings account for every dollar you save

Which will most benefit you financially?

a savings account that compound interest daily

Liquidity risk is highest for which type of investment? a. real estate b. mutual funds c. savings account d. individual stocks

a. real estate

If Jessica chooses to buy more auto insurance this year than she bought last year, then Jessica has probably decided that a. the benefits of more auto insurance are greater than the costs b. more auto insurance will reduce her chances of an accident c. this added insurance will help her savings grow faster d. she will drive more safely in the future

a. the benefits of more auto insurance are greater than the costs

Some people choose to stop attending high school before graduation. What is the opportunity cost to the individual of dropping out of high school? a. the lower income earned in the job market b. the lower interest rates one is charged for credit c. the higher taxes one pays for leaving school early d. the payments made to companies hiring "drop outs"

a. the lower income earned in the job market

The best indicator of the cost of a loan is the

annual percentage rate

A positive net worth means that

assets are greater than liabilities

An employee works for 40 hours per week at $10 per hour. The deductions per week are $50 in federal income taxes, $20 in state income taxes, and $30 in Social Security taxes. What is the net pay for the week? a. $330 b. $300 c. $350 d. $400

b. $300

About how many years would it take for $1,000 to become $2,000 if $1,000 is deposited in a savings account with an interest rate of 7.2 percent? a. 7.2 b. 10 c. 14.4 d. 20

b. 10

A typical characteristic of entrepreneurs is that they a. like to work part time b. are willing to take risks c. would rather save than invest d. enjoy working under supervision

b. are willing to take risks

Which would be considered a human resource? a. office building b. factory worker c. phone book d. electricity

b. factory worker

Human capital consists of a. stocks and bonds b. knowledge and skills c. plants and equipment d. savings and investments

b. knowledge and skills

What is the general relationship between risk and reward? a. the higher the risk, the lower the potential reward b. the higher the risk, the higher the potential reward c. the amount of risk does not influence the potential reward

b. the higher the risk, the higher the potential reward

When making an investment, "market price risk" refers to which possibility? a. the difficulty of converting one's investment into cash b. the value of the investment could decrease over time c. the inability to get any money back from the investment d. the interest earned might be greater than the rate of inflation

b. the value of the investment could decrease over time

Who generally benefits from a loan transaction?

both the borrower and the lender

A key advantage of getting credit is that it can help people

buy a good today and pay for it later

Emily works full time at Handy Dandy Hardware. Who pays the FICA (Social Security) contributions on Emily's wages? a. Emily only b. her employer only c. Emily and her employer d. the federal government

c. Emily and her employer

Which will result from an increase in the demand for software programmers? a. a decrease in the price of software b. a decrease in the supply of software c. an increase in the wage of software programmers d. an increase in unemployed software programmers

c. an increase int he wage of software programmers

Jamal values three goods in this order (1) a CD player (2) a computer game and (3) a sweatshirt. Each item costs $50. Jamal bought the CD player, what he wanted the most. His opportunity cost is the a. sweatshirt b. CD player c. computer game d. sweatshirt and computer game

c. computer game

What is the opportunity cost of letting your interest compound in your savings account instead of withdrawing the interest as it is earned? a. lower taxes in the current year b. increased risk of losing savings c. less money for current purchases d. more interest on the savings account

c. less money for current purchases

One consequence of scarcity is that a. there is full employment of resources b. the production of goods and services is constant c. people have to make choices among alternatives d. products which are plentiful have relatively high prices

c. people have to make choices among alternatives

Which strategy is most likely to improve most people's financial situation over a life time? a. using credit to spend more than a person earns b. making financial decisions quickly based on intuition c. saving early in life when a person begins earning an income d. gaining work experience early instead of going to college

c. saving early in life when a person begins earning an income

Which three things do creditors consider to be most important when judging a person's credit worthiness to buy a house or car?

character, collateral, and capacity

Using a debit card to purchase a good is most similar to using a

check

Which of the following is NOT an example of a savings vehicle?

checking account

Beginning to save while you are young is recommended by financial experts because it a. is easier to save when you first begin earning income b. is hard to save later in life when you have more income to spend c. allows you to lock in higher interest rates when you buy on credit d. lets compound interest work in your favor by earning interest on interest

d. lets compound interest work in your favor by earning interest on interest

Charlie opens a savings account and deposits $500. If the savings account has a fixed annual interest rate of 5 percent, and he makes no additional deposits or withdrawals, what amount will Charlie have in his savings account at the end of two years? a. exactly $505 b. exactly $550 c. less than $550 d. more than $550

d. more than $550

What is the difference between gross and net pay? a. net pay is gross pay minus saving b. gross pay is net pay minus saving c. gross pay is net pay minus deductions d. net pay is gross pay minus deductions

d. net pay is gross pay minus deductions

Which of the following is typically true? a. correct choices have no cost b. people do not respond to incentives c. voluntary trade causes winners and losers d. people's choices have consequences for the future

d. people's choices have consequences for the future

The expression "there is no such thing as a free lunch" means a. free lunches are a scam but cannot be avoided b. scarce resources are rare and therefore expensive c. individuals, but not society, suffer from a lack of resources d. resources used for one purpose could have been used for another purpose

d. resources used for one purpose could have been used for another purpose

Which of the following is the best definition for saving?

disposable income minus consumption spending

A whole life insurance policy offers protection

during the lifetime of the insured and builds cash value

What type of insurance protects a person from loss from lawsuits?

liability

If a borrower chooses to pay back a loan over a longer period of time, the monthly payment is

lower and the interest paid is higher

Which of the following do economists consider to be an example of capital goods?

machines in an auto plant

The opportunity cost of a new high school is the

other goods and services that must be given up for the new school

Common stock provides the shareholder with

ownership in a company

Which type of financial institution typically charges the highest interest rates for loans?

payday loan companies

What are the three most important criteria to consider when investing?

risk, rate of return, and liquidity

Disposable income is the money that is

spent or saved after deductions

How do you calculate the real rate of return on an investment?

subtract the rate of inflation from the nominal rate of return

Which of the following is an example of human capital?

the ability to read

What is the relationship between the interest rate charged an individual and a person's risk of nonpayment of a loan?

the higher the risk of nonpayment, the higher the interest rate

What does a credit bureau do?

tracks the bill paying habits of consumers

A thief takes your credit card. You report the card missing, but the thief has already run up $2000 in bills. How much of the $2000 are you responsible for?

your liability is limited to $50