Economics Week 12 Test

What is the barter system? Is it efficient or not?

find someone who wants the product you have, and has the product you want. While the barter system on a micro (smaller) level is often clumsy, it is completely unworkable on a macro (large) level

What is money? What is meant by "medium of exchange"?

universally exchangeable for all goods and services, or what economists call a medium of exchange, or money. First, it would be almost permanent, portable, durable, easily divisible, relatively rare, unchanging, and have an almost universal appeal.

What are some of the characteristics of a good medium of exchange? Can you think of examples for the various characteristics?

First, it would be almost permanent, portable, durable, easily divisible, relatively rare, unchanging, and have an almost universal appeal.

In Virginia, Tobacco was once used as a medium of exchange. Did this work out well? Why or why not?

Virginia (like in a 1940's Hollywood movie), everyone smoked. But tobacco as a medium of exchange presented a problem. The Virginians were a smart people and they quickly asked themselves a question: "Why should we use the good tobacco as a form of payment when we could use the old, smelly tobacco as payment and keep the good, delicious, fresh tobacco for smoking ourselves?" Bad tobacco drives the good tobacco out of circulation.

What is meant by "fiat currency"?

A fiat currency is a currency that is lacking intrinsic value, that is, it is not valuable in itself, but is said to have value because the government says it has value, and the government stands behind what it says.

What is the gold standard?

mount of currency in circulation is related to gold in some way, either by being directly convertible to gold, or to having the currency issued limited to the amount of gold available in the country.

Name some of the major currencies presently in circulation around the world.

American Dollar, the Euro, the Swiss Franc, the British Pound, the Chinese Yuan, the Australian Dollar, the Mexican Peso, the Thai Bhat, and the Polish Zloty.

What is a bank? What is one of the primary ways that banks produce profits?

A bank is an institution that facilitates monetary transactions for its clients and customers. Services commonly offered by banks include checking accounts, savings accounts, credit services, and loans. Banks produce profits for themselves in a variety of ways. Although banks sometimes offer free services (like free checking) or goods (like toasters), banks normally charge fees for their services. One of the primary ways that many banks produce profits is through the loan process.

What is the difference between a collateralized loan and an uncollateralized loan?

A loan that is backed by hard assets is called a collateralized loan. A loan that is unbacked by assets is an uncollateralized loan. The "collateral" is that thing that backs the loan.

When purchasing a car, what serves as collateral?

If you borrow money from a bank to purchase a car, your car is the collateral. If you don't make the payments, the bank can literally take away from you the collateral, that is, remove the car from your driveway and sell it for the amount of money you owe the bank.

When purchasing a house, what type of document is required during the loan process? What is used as collateral with a loan such as this?

. A mortgage is a signed document between the bank (or another type of financial intermediary) and the borrower. The mortgage document specifies relevant details such as the principal amount, the length of the loan, and the interest rate.

What is a loan failure? Is a loan failure good or bad for the bank?

But banks can have failed loans, that is, a loan that defaults (simply put, a loan that remains unpaid). In fact, the government often controls what the bank can do, and often forces banks to make loans they don’t want to make!And the bank ends up owning the house, which is something that they don’t want to do. If the bank has a high loan failure rate, the bank can go out of business. Some banks have a higher loan default rate than others.

What is meant by the term "public company"? What is meant by the term "going public?"

Public companies are those in which you can buy shares, or stock. When an investor buys stock in a company, the investor is actually buying a share of the company. . As the name implies, each investor-shareholder is a partial owner of the company. An investor's share might amount to only a tiny fraction of the outstanding shares, but the investor is nevertheless a partial owner. The process of taking a company from a private company to a public company is called "going public."

Name the two largest stock exchanges in America. What are some other major exchanges? What is meant by the term "Wall Street"?

The New York Stock Exchange and the NASDAQ. But when people use the term "Wall Street," they often refer to the collective world of investments. "Wall Street" is a physical place, located in New York City.

When an investor buys stock, what is he or she actually buying?

When an investor buys stock in a company, the investor is actually buying a share of the company. As the name implies, each investor-shareholder is a partial owner of the company. An investor's share might amount to only a tiny fraction of the outstanding shares, but the investor is nevertheless a partial owner.

Why would a company issue stock? Why would an investor buy stock?

It is typically because they need to raise capital—that is, they need the money from others to expand their business. When a company desires to raise money or capital, it has several options: it can issue stock, it can issue bonds (a bond is basically an IOU), or it can simply borrow the money from the bank. The process of taking a company from a private company to a public company is called "going public."

From a financial standpoint, the answer is simple: you want to make money. There are two basic ways that investors make money by owning stocks. The first is called capitalappreciation. In layman's terms, this simply means that the stock went higher in price. The second way is through dividends. Dividends are payments made by companies to shareholders. They are typically paid on a quarterly basis. Of course, not every stock pays dividends. There is normally nothing requiring them to do so. If the shareholder does not receive a dividend, she must simply hope that the stock price goes up. For that matter, not every stock goes up.

What is a bond

When a company desires to raise money or capital, it has several options: it can issue stock, it can issue bonds (a bond is basically an IOU), or it can simply borrow the money from the bank.

Are all investments moral? What was one of the main purposes of the Principles for USCCB Investments document included within this chapter?  

It means that some investments are immoral.

Principle 2: The Conference should exercise ethical and social stewardship in its investment policy. Socially responsible investment involves investment strategies based on Catholic moral principles. These strategies are based on the moral demands posed by the virtues of prudence and justice. They recognize the reality that socially beneficial activities and socially undesirable or even immoral activities are often inextricably linked in the products produced and the policies followed by individual corporations. Given the realities of mergers, buyouts and conglomeration, it is increasingly likely that investments will be in companies whose policies or products make the holding of their stock a "mixed investment" from a moral and social point of view. Nevertheless, by prudently applying traditional Catholic moral teaching, and employing traditional principles on cooperation and toleration, as well as the duty to avoid scandal, the Conference can reflect moral and social teaching in investments.

What is Social Security? What is its function? How does it stack up against the returns generated by stock investments? 

• Social Security: A federal program in the United States designed to provide financial security.

  • Function: It acts as a safety net providing retirement, disability, and survivor benefits to workers and their families.

  • Comparison to stock returns: Social Security generates much lower financial returns than stock investments, as it is meant to be a guaranteed, low-risk insurance safety net rather than a wealth-building investment portfolio.