Economics Chapter 8
What is Legal tender?
currency that must be accepted as money for purchases, and payment of debt
What is an M1?
demand deposits; checkable deposits; travelers checks; currency; liquidates easily
What would an investment that has a high risk return have?
high risk = high reward: may not get money back
Why are checking accounts considered part of the money supply?
in a checking account its your money
How does personal saving help the economy grow?
interest and banks use your money to give loans to other people
What percentage of their salary would an average American put in their savings?
less than 3%
Why would someone take out a commercial loan?
machinery, equipment, and materials, or to pay labor costs
What does money function as?
medium of exchange, standard of value, and store of value
Why are U.S. dollars considered money?
meets all 6 characteristics of money; its is legal tender
Why was gold and silver the preferred kinds of commodity money?
met all 6 characteristics of money
What is the Rule of 72?
72 / interest rate = # of years to double money
What is the difference between a Debit Card and a Credit Card
Debit Card- directly from checking account Credit Card- a loan
What kind of account would you need to get the greatest amount of interest on your deposits?
Time deposits; Certificate of Deposits(CD)
True or False: Most people need Social Security, company retirement plan, and savings to pay for retirement.
True
What is Fractional Reserve Banking?
banks keep a fraction of deposits in reserve and make loans with the rest
The Federal Reserve plays an important role in WHAT?
balancing economy; controls interest rate: distributes US money supply
What is Fiat Money?
money issued without the backing of gold or silver
What is a bank's main function?
receive deposits, make loans,BRING TOGETHER BORROWERS AND SAVERS-- INTERMEDIARRIES
Why should you put aside money as savings?
retirement,college, unexpected emergenies,help grow economy
How would you most likely invest you're money if you have a low tolerance risk?
savings account or US treasury bonds, notes, and bills
What would be the best strategy to make sure you put aside money in savings?
savings account, split check to add to savings
What are you doing when you are using a credit card?
taking a loan and promising to pay it back
Why would a busy investor be likely to invest in a profesionally managed Mutual Fund
to achieve diversification
What is compounding?
when investments make money by doubling-- make money with money you already have
