E & PF Exam Review
In the United States, the agency responsible for regulating the system of money is the
Federal Reserve
What are the most important factors to consider when opening a savings account?
The fees, the interest rates, and the minimum deposit to open the account
Traditional economy
an economic system in which people make economic decisions based on customs and beliefs that have been handed down from one generation to the next
Command economy
an economic system in which the government makes all economic decisions
Down Payment
an initial payment made when something is bought on credit
Cooperative
an organization that is owned and operated by its members
When the Fed makes decisions about the control of the money supply their decisions are referred to as
monetary policy
Ernest Money
money paid to confirm a contract
Conventional Mortgage
mortgage made by a private lender and not backed by the government - most common types are backed by Fannie Mae or Freddie Mac
Fixed-Rate Mortgage
mortgage with a set interest rate and a set schedule of payments
All of the following will likely result in lower insurance premiums
paying premiums semi-annually rather than monthly, installing smoke detectors and security alarms in your home, getting good grades in school
Debt-to-Income Ratio
percentage of your gross monthly income that goes to paying your monthly debt payments
microcredit program/microcredit
program that provides small loans to the poor, especially women, to encourage small business development
Which location is likely to have the HIGHEST cost of living?
A thriving city with a growing health care sector, pro sports teams, and good public transportation
What are the two ways investors can earn money from a stock?
Dividends and selling the stock at a higher price than they bought it
While researching college scholarships to apply for, you see an ad that says, "Enter a few pieces of information, pay $39.99 per month, and we guarantee to win you a scholarship. You don't even have to write an essay! Sign up today with just your name, social security number, and an email address!" How should you proceed?
Don't sign up, because you should not pay money to win scholarships, and you should never enter your social security number into unknown websites
proportional tax
A tax in which the average tax rate is the same at all income levels.
A commonly used strategy to minimize investing risk is...
Diversifying across asset classes and within each asset class
Uma's renters insurance policy has a premium of $15/month, a deductible of $1000, and a personal property coverage limit of $40,000. Her apartment is burglarized and $5,600 of possessions are stolen or destroyed. How much will Uma pay in order to replace her stuff?
$1000
A healthy unemployment rate is between
4% and 6%
Which Constitutional Amendment protects private property from being taken from a citizen without due process.
5 th
All of the following are advantages of saving for retirement in a 401(k)
A 401(k) has a higher contribution limit than an IRA; Some employers will match contributions to your 401(k);Your 401(k) contributions are tax-deductible
Sam is 22, just started his first full-time job, and is selecting his investments through his company's 401(k) plan. Why might a target date fund (TDF) be a good option for Sam?
A TDF will automatically adjust his asset allocation based on the retirement year he has chosen
Why is it so important to have a checking account?
A checking account facilitates the rest of financial life by making your money available when and where you need it while also keeping it safe
multinational corporation (MNC)
A large business organization operating in a number of different national economies; the term implies a more extensive form of transnational corporation - Pepsi, Nescafé, GE, Coca-Cola, Nokia, etc.
Roth IRA
A personal savings plan; contributions are not tax-deductible; earnings are tax-free
What is one difference between actively managed mutual funds and index funds?
Actively managed mutual funds typically have higher fees than index funds do
your employer sponsored healthcare plan
An employer sponsored healthcare plan means that your employer likely pays the majority of your premium.
Which of the following are benefits of free trade between China and the U.S.?
An increase in job opportunities abroad for American firms., Lower costs of production for U.S. firms because of inexpensive products from China, Cheap products from China in the U.S.
What is a bond?
An investment in which you loan money to a corporation or government and are paid back with interest and the principal that you originally lent to them.
Which of the following explains why risk is not always bad when it comes to investing?
As risk increases, so does the possibility of greater returns
All of the following are considered goods
Brand new Reebok jerseys purchased for the soccer team, Nike shoes purchased for a local high school football team, Recycled warm-up outfits handed down to the basketball team
Susan has $40,000 of federal student loan debt and chooses to make a monthly payment of $200. Brian also has $40,000 in federal student loan debt and chooses to make a monthly payment of $350. Assuming both loans carry the same interest rate, what can we deduce about the interest Brian will pay?
Brian will pay less interest over the term of his loan
Why is compound interest more advantageous than simple interest?
Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned
Jocelyn gets a text alert from the bank that her account has dropped below $100 after a series of $20 ATM withdrawals. She has not used her ATM in over a week and wonders what she should do. What would you recommend?
Contact her bank immediately as it appears that her account may have been hacked
You find an error on your credit report. Your credit card account indicates that you are 60 days late on your payment but you have bank records indicating that you have always made on-time payments. What should you do FIRST?
Contact the credit card company to have them fix it
Craig has heard that taking out federal student loans is always preferable to taking out private student loans, but he doesn't understand why. Which of the following would you tell Craig to explain the advantage of taking out a federal student loan over a private student loan?
Federal student loans generally have more flexible and affordable repayment options compared to private loans.
deficit spending
Government practice of spending more than it takes in from taxes
Rank these ways to pay for college from MOST attractive to LEAST attractive: 1. Federal Loans 2. Work- Study 3. Private Loans 4. Grants and Scholarships
Grants and Scholarships, Work-Study, Federal Loans, Private loans
It is the overall market value of the goods and services produced domestically by a country. It is an important figure because it gives an idea of whether the economy is growing or contracting. It includes adding together private consumption or consumer spending, government spending, capital spending by businesses, and net exports—exports minus imports. What is the most basic indicator, described above, used to measure the overall health and size of a country's economy?
Gross Domestic Product
How is gross pay different than net pay?
Gross pay is the total you earned, while net pay has taxes deducted
The Federal government spends the most amount of tax money on...
Health
How do imported low cost inputs and components help U.S. manufacturing?
Helps keep U.S. manufacturers competitive
Since the importance of tobacco was declining, what other agriculture industries are taking tobacco's place?
Hog farming and poultry farming which increased the food processing industry
What is a pension plan?
How much an employee gets from a pension depends on how long they've worked for the employer and how much they earn
Ben is 24 and wants to start saving for retirement. What can he do to set himself up for success?
Invest 10-15% of his monthly salary
How does investing in the stock market differ from putting money in a savings account at a bank?
Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies
You are at the checkout counter at the local supermarket, use your debit card to pay for your groceries, and select "credit" when the cashier asks "Debit or credit?" Where does the money for this purchase come from?
It is deducted directly from your checking account
How does a low-balance mobile alert on your checking account work?
It will alert you when your balance falls below a certain amount, and you will know to stop spending until you can add additional funds
Which of the following auto insurance coverages are you REQUIRED to carry in most states (49 out of 50)?
Liability
Which of the following is an advantage of using a robo-advisor compared to hiring most financial advisors?
Lower fees
Your friend confides in you that he has a low credit score. What is the single best way for him to improve his score?
Make on-time payments
Which of the following will help you begin developing a credit history before you graduate from college?
Make small payments on your student loans while in college, even though they are not required to be paid back until you leave
When Emmanuel receives his Student Aid Report, it lists an Expected Family Contribution (EFC) of $8000 for the year. His family had only budgeted to give him $2000, so they are $6000 short. Which of the following is/are option(s) that Emmanuel and his family can take? I) Emmanuel can call the financial aid office, explain the situation, and ask them to review his materials again. II) His parents can take out a federal Direct PLUS Loan for the other $6000. III) Emmanuel can apply for scholarships or grants from other organizations besides the college. IV) His parents can take out a federal student loan in their name for the other $6,000.
ONLY Emmanuel can call the financial aid office, explain the situation, and ask them to review his materials again., His parents can take out a federal Direct PLUS Loan for the other $6000., Emmanuel can apply for scholarships or grants from other organizations besides the college. only
When filing the FAFSA online, you need... I) Username and password for FSA ID II) Your Social Security Number (or Alien Registration Card if not a US citizen) III) Proof of Employment IV) Bank and/or investment statements (if applicable)
ONLY; User Name and password for FSA ID, your social security number, and bank and/or investment statements if applicable
What are the two most important factors in calculating your credit score?
Payment history and amounts owed
What incentivizes people to start a business?
Profit Motive
Sadie is a freelance social media specialist. Companies can hire her to improve their social media presence. Why is it particularly important that Sadie, and other freelancers like her, have an emergency fund?
Sadie doesn't have guaranteed work every day, so she needs money in case she goes a while between clients
While NEEDS and WANTS can vary greatly depending on the individual and their situation, which of these items would most people agree to be a NEED?
Safe, reliable childcare for a single parent so they can go to work
Which of the following is an effective strategy for personal saving?
Save a certain percentage of each paycheck and deposit it directly in a savings account
Nonprofit organization
a type of business that focuses on providing service, not on making a profit
Sanjana is explaining what Social Security is to her younger brother. Which of the following descriptions should she use?
Social Security is a government program that pools contributions from current workers to then provide retirement support benefits to those who are eligible
Who would benefit the MOST from investing in a Roth IRA rather than another type of retirement account?
Someone who is young and expects to earn more money later in life, so they'll be at a higher tax bracket then
Which loan type am I? I have limits on the amount that you can borrow based on your year in college. The federal government makes the interest payments on me while you are in college, and you make the interest payments on me after you graduate.
Subsidized Federal Student Loan
reasons international trade and investments are important to NC
Supports 1.2 Million jobs in NC, NC exports $46.4 Billion in goods and services in 2013, NC goods exports have grown 51% faster than state GDP since 2003, Imports lower cost imports help companies stay competitive and offer lower price goods which helps consumers, Foreign companies invest and build factories and employ 203,400 jobs
The "Big Three" was replaced by the "Big Five." What are the "Big Five" industries?
Technology, Pharmaceuticals, banking, food processing, vehicle parts
What NC industries were impacted negatively when the U.S. signed NAFTA (North American Free Trade Agreement) and the WTO was established which led to increased globalization?
Textiles, apparel, furniture
What organizations would best represent a monopoly with market power over their industry?
The National Football League (NFL)
What is the relationship between the FAFSA, a Student Aid Report (SAR), and a Financial Aid Package?
The answers you submitted in your FAFSA are reported in your SAR. Schools then use your SAR to create a Financial Aid Package for you.
What were the "Big Three" on NC Industries?
Tobacco, Furniture, Textiles
Mixed economy
an economic system combining private and public enterprise; it's the most common type
When you sit down to file your 1040 form, which document(s) should you have in front of you?
W-2 form(s)
Escrow Account
a type of legal holding account for items or money, which cannot be released until predetermined conditions are satisfied - with a mortgage it is used by the mortgage lender to pay certain property -related expenses)
The defining characteristic of a job in the gig economy is...
Workers complete short-term work for many different clients
What would be a good time to spend money from your Emergency Fund?
You lose your job but still have bills to pay
example s of the factors of production
a worker at target, trees used for making paper, elon musk the owner of tesla
One example of an entrepreneur is
an computer engineer that starts their own social media company
When signing up for a new checking account you answer "Yes" to receive overdraft protection. On this day, you have $10 in your account. You go out and use your debit card to buy lunch for $12, a movie ticket for $12 and dinner for $15. What is likely to be the outcome resulting from these transactions?
You will likely be charged an overdraft fee for EACH transaction and also will need to repay the bank for the amount overdrawn ($29)
Why should you accurately complete a W-4 form any time you start a new job or change your tax status?
Your W-4 determines how much Federal income tax money your employer should withhold
Each of the following factors affect your monthly auto insurance premium
Your vehicle's make, model, and year; Your driving record; Your age and marital status.
Incentive
a benefit offered to encourage people or businesses to act in a certain way
Sole proprietorship
a business owned by one person
partnership
a business owned by two or more people who share its risks and rewards
Corporation
a company that is registered by a state and operates apart from its owners
Franchise
a contractual agreement to use the name and sell the product or services of a company in a designation geographic area
Which of the following is the best definition of a need?
a fundamental necessity for life
subsidy
a government payment that helps cover the cost of an economic activity that can benefit the public as a whole
Patent
a legal registration of an invention or a process that gives the inventor the exclusive property rights to hat invention or process for a certain number of years
Credit Score
a number assigned to a person that indicates to lenders their capacity to repay a loan
Free Rider
a person who does not pay for a good or service but who benefits from it when it is provided
Economies of Scale
a situation in which the average cost of production falls as the producer grows larger
Scarcity
a situation that exists when there are not enough resources to meet human wants
Private Mortgage Insurance (PMI)
a special policy that protects a lender in case a buyer cannot make payments at all or on time
Credit Report
a statement that has information about your credit activity and current credit situation
Free Enterprise System
another name for capitalism, an economic system basked on private ownership of productive resources
Market Economy
any place or situation in which people buy and sell goods and services
Barrier to Entry
anything that hinders a business from entering a market
infrastructure
basic set of support systems - such as power, communications, transportation, water sanitation, and education systems - needed to keep an economy and society going
If the U.S. has more imports than exports then it is running a trade
deficit
You bought two new CDs with the last $30 in your checking account instead of having dinner and a movie with your friends this Saturday night. Your next payday is on Monday. What is the tradeoff t of these CDs?
dinner and a movie with friends
Advantages of Sole Proprietorship
easy to start, owner keeps all profits, owner is in charge, taxes are low,
Domestically-produced goods and services that are sold abroad are called
exports.
Which of the following is an example of a progressive tax?
federal income taxes
top exports from NC
fibers, yarn, thread; tobacco products; knit apparel; fabrics; glass and gloss products
Fair Isaac Corporation (FICO) Score
generates the most widely used credit score that financial institutions rely on to decide whether to lend money or issue credit
Public Goods
goods and services provided by the government and consumed by the public as a group
I have a family of meat eaters...Long ago I discovered a marvelous cut of meat called skirt steak. It used to cost 89 cents a pound. It has inked its way up and has recently took a leap to $1.59and overtaking sirloin steak. Chopped meat is not where my skirt steak used to be...Even the lowly onion is no longer cheap. A weekly trip to the supermarket, which is 1969 cost $50, now costs $70." - Newspaper Editorial, The New York Times, September 29, 1972 The quote above is an example of _______________________.
inflation
Second Mortgage
is a loan made in addition to the homeowner's primary mortgage, sometimes used to finance large purchases like college or a new vehicle
United States-Mexico-Canada Agreement
it is better overall for the United States then previous agreement, A free trade agreement between the Mexico, U.S., & Canada, Replaced NAFTA
Factors of production are
land, labor, capital, entrepreneurship
Examples of Public Goods
law enforcement, fire departments, street lights, clean drinking water, public education,
ways the government encourages growth and stability
promoting full employment, funding technological progress and encouraging the development of new technologies, promoting economic citizenship, Keeping prices stable, tracking business cycles
A dependent is someone who...
relies on someone else to provide more than half of their financial support.
The Three Types of business organizations are
sole proprietorship, partnership, corporations
If the U.S. has more exports than imports it is running a trade
surplus
All of the following would act as a barrier to trade (makes trade harder) between two countries
tariffs (taxes paid on imported goods), embargo (partial or complete prohibition of trade with another country), embargo (partial or complete prohibition of trade with another country).
Who supervises banks to make sure that they are not doing anything illegal?
the Federal Reserve
Trade-off
the alternative someone gives up when making economic decisions
Start up Costs
the expenses that a new business must pay to ender a market and begin selling to consumers
profits
the financial gain a seller makes from a business transaction; the money left over after the costs of producing a product are subtracted from the income gained buy selling that product
Profit motive (profit incentive)
the force that encourages people and organizations to improve their material well-being
Gross Domestic Product (GDP)
the market value of all final goods and services produced within a nation in a given time period
cost-benefit analysis
the practice of examining the costs and the expected benefits of a choice as an aid to decision making
What is the opportunity cost of a decision?
the value of something that is given up by choosing one alternative over another
Economic System
the way in which a society uses its scarce resources to satisfy its people's unlimited wants
Variable-Rate Mortgage
type of home loan in which the inters rate is not set, instead the payments will change at a specific point
Which of the following is a leading indicator for the health of a country's economy?
unemployment rate
Going to an in-network doctor is a good idea, because...
you will save on overall costs when compared to seeing an out-of-network doctor.