eco 2

What are some items that can safely be purchased with borrowed funds? What are some items that definitely should not be purchased with borrowed funds? Why?

Three items that should be purchased with borrowed funds are houses, automobiles, and education. These are all things that will keep their value and will help you gain wealth in the future. You should not borrow funds to buy things that will lose value immediately after they are used. These things include vacations, clothing, a night out with friends, and food.

Which of the following is the best analogy to describe the power of compound interest?

a snowball rolling down a snow-covered mountain, growing in size as it descends

Are goals important in formulating your budget? Explain how you can use budgeting to achieve personal goals to motivate yourself.

Yes, goals are important for formulating a budget. When making a budget, you should set a goal for how much money you want to have saved over a certain period of time. After setting that goal you should figure out how much money for you need go save each month and how much money you have to spend. After setting aside you money to save, you should then figure out what you are going to spend you "spending money". You should split your spending money into the different categories that you will spend them for. If you stick to you budget plan, it will help you achieve your goals.

It is often substantially cheaper to own and operate a used car rather than a new one because

the depreciation cost for a new car will almost always be substantially higher

Your comparative advantage in a specific area is determined by

the market value of the skill relative to your opportunity cost of supplying it

If you are using a credit card prudently, you should

pay the balance in full each month

Traditional IRAs, 401k plans, and other tax-deferred saving plans will

reduce your current tax liability because funds paid into these plans are tax deductible

Many Americans feel financially insecure primarily because

the personal saving rate of Americans is low and many spend more than they earn

The random walk theory indicates that

changes in stock prices are driven by surprise occurrences that are difficult to predict

Which of the following items would be most dangerous to purchase on credit

vacation

Financial insecurity in America is primarily the result of

a low rate of personal saving and poor financial planning

Economic analysis indicates that

no matter what our objectives in life, they are easier to achieve if we have more wealth

Buying shares of corporate stock tends to be risky when

all stocks bought are in the same industry \n the stock of a single corporation is purchased \n the stock may have to be sold within a few months

Which of the following words of advice will reduce your likelihood of being "ripped off" by a fraudulent investment scheme?

Never purchase an investment solicited by telephone or email \n Never let yourself be forced into a quick decision \n Deal only with persons at companies who have reputations to protect

How would entrepreneurial thinking influence your educational choices? How would it influence your actions as an employee?

Entrepreneurial thinking enhances a persons productivity. It focuses on developing and using talents to mobilize resources that people value highly. This can influence your educational choices, because when looking for what to study, you will find something you that you love and that will lead to a job that people value. As an employee, it will influence you to sell your best and most useful talents to employers. It will also influence you to join in the risk of the company and buy stocks or bonds in the company you work for.

A monthly budget can help you achieve financial security by

increasing your financial awareness and helping you allocate your funds more effectively

Compared to high school graduates, those who drop out are

more likely to be poor

The variation in the rate of return one can expect from ownership of stocks will generally be smaller

if all of the funds are invested in a single stock

The use of debt financing to purchase food, clothing, vacations, and other non-durable items

is imprudent because such purchases will mean that you will soon be making payments on items that have no value

What are the dangers involved in the use of credit cards? How can you reduce these risks?

One of the biggest dangers in the use of credit cards is credit card debt. If you do not pay off the money you owe on your credit card in full, then you will be in debt. Once you get in credit card debt, you will be stuck in it for a while. The debt will start to gain interest, and you will end up having to pay much more than you originally owned. One way to reduce this risk is by paying off your credit card bill in full. You could also reduce the risk by cutting up your credit card and using cash, if you can not control yourself.

Which of the following is the best example of an item that a "rainy day" savings account is designed to cover?

an unexpected expenditure to repair the transmission of your car

Which of the following is an advantage of an indexed equity mutual fund relative to a managed equity fund?

Indexed funds have lower operating costs because they engage in less stock trading

Which of the following has made it possible for investors without any special business skills to benefit from the ownership of corporate America?

the availability of mutual funds, which make it possible for even small investors to purchase a diverse stock portfolio at a low cost

What is compound interest? How does compound interest affect the importance of starting a saving and investment program at an early age? Explain.

Compound interest is when you earn interest on top of interest. When you start a saving and investment program, the money in there will earn interest after a year. If you do not spend that interest, then next year, you will earn interest on the money you saved and the interest you already earned. This is important to start at a young age because if you just leave money in a certain account and do not touch it, it will eventually add up to a lot of money.

What is the purpose of a rainy day fund? How much saving should you keep in your rainy day fund? Why?

The purpose of a rainy day fund is to be prepared for a surprise situation that will be expensive. Such as when your car breaks down. You should add saving to your rainy day fund to your budget. There is no set amount that you should keep in this fund. You should save how ever much will buy you peace of mind, and make you feel prepared for any surprise situation that may come your way.