Economics and Personal Finance Review

These flashcards cover key concepts in economics and personal finance, providing a comprehensive tool for exam preparation.

What is economics?

Economics is the study of how individuals, businesses, governments, and societies make choices about how to allocate limited resources to satisfy unlimited wants and needs.

What is scarcity in economics?

Scarcity refers to the basic economic problem that arises because resources are limited, while human wants are infinite.

What is opportunity cost?

Opportunity cost is the value of the next best alternative that is given up when a decision is made.

What is the law of demand?

The law of demand states that, all else being equal, as the price of a good or service decreases, the quantity demanded increases.

What is the law of supply?

The law of supply states that, all else being equal, as the price of a good or service increases, the quantity supplied increases.

What is the role of competition in the market?

Competition encourages innovation, lowers prices, and improves quality, benefiting consumers.

What is a market economy?

A market economy is an economic system where the production and distribution of goods and services are guided by the interactions of citizens and businesses in the marketplace.

What is a mixed economy?

A mixed economy combines elements of both market economies and planned economies, where both the private and public sectors play roles in economic decision-making.

What is GDP (Gross Domestic Product)?

GDP is the total value of all goods and services produced within a country over a specific period, usually annually or quarterly.

What is inflation?

Inflation is the rate at which the general level of prices for goods and services is rising, leading to a decrease in the purchasing power of money.

What is unemployment?

Unemployment occurs when people who are capable of working, are actively seeking work but are unable to find any work.

What is the role of government in a market economy?

The government regulates and supports the economy by enforcing laws, providing public goods and services, and addressing market failures.

What is a business cycle?

The business cycle refers to the fluctuations in economic activity, typically consisting of periods of expansion (growth) and contraction (recession).

What is monetary policy?

Monetary policy involves the management of the money supply and interest rates by a country's central bank to control inflation and stabilize the currency.

What is fiscal policy?

Fiscal policy refers to government spending and taxation decisions that influence the economy.

What are taxes?

Taxes are compulsory contributions levied by a government on individuals and businesses to fund public services and infrastructure.

What is the Federal Reserve?

The Federal Reserve is the central banking system of the United States, responsible for managing the money supply, setting interest rates, and regulating banks.

What is the stock market?

The stock market is a place where buyers and sellers trade stocks (shares) of publicly listed companies.

What is the difference between microeconomics and macroeconomics?

Microeconomics focuses on individual markets and consumer behavior, while macroeconomics looks at the economy as a whole, including issues like GDP, inflation, and unemployment.

What is a monopoly?

A monopoly occurs when a single company or entity has exclusive control over a particular product or service in the market.

What are factors of production?

The factors of production are land, labor, capital, and entrepreneurship, which are used to produce goods and services.

What is a budget?

A budget is a financial plan that estimates income and expenses over a certain period, helping individuals or organizations manage their finances.

What is the difference between needs and wants?

Needs are basic essentials for survival (e.g., food, water, shelter), while wants are non-essential desires (e.g., luxury items, entertainment).

What is a trade-off?

A trade-off is the decision-making process where a person or organization must sacrifice one thing in order to obtain another.

What is a credit score?

A credit score is a numerical representation of an individual's creditworthiness, used by lenders to determine the likelihood of loan repayment.

What is personal finance?

Personal finance refers to managing personal financial decisions, including budgeting, saving, investing, and planning for future financial needs.

What is the importance of creating a budget?

Creating a budget helps track income and expenses, ensuring that individuals live within their means, save money, and avoid debt.

What is net income?

Net income is the amount of money a person earns after deductions such as taxes, social security, and other withholdings.

What is gross income?

Gross income is the total income earned before taxes and other deductions are taken out.

What is the difference between a fixed expense and a variable expense?

A fixed expense is an amount that does not change month to month, such as rent or mortgage, while a variable expense fluctuates, such as food or entertainment.

What is an emergency fund?

An emergency fund is a savings account set aside for unexpected expenses, such as medical emergencies or car repairs.

What is the purpose of an insurance policy?

An insurance policy helps protect individuals and families from financial losses due to unexpected events, such as accidents, illness, or property damage.

What is the difference between a checking and a savings account?

A checking account is used for day-to-day transactions, while a savings account is for saving money over time and typically earns interest.

What is interest?

Interest is the cost of borrowing money or the earnings on savings, typically expressed as a percentage of the principal amount.

What is the role of a credit card?

A credit card allows individuals to borrow money up to a certain limit to make purchases, which must be repaid, often with interest.

What is the difference between a debit card and a credit card?

A debit card draws directly from your checking account, while a credit card allows you to borrow money and pay it back later.

What is compound interest?

Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods.

What is a financial goal?

A financial goal is a specific target for saving or investing, such as saving for college, buying a car, or retirement.

What is the role of taxes in personal finance?

Taxes are mandatory contributions levied by the government to fund public services such as education, infrastructure, and national defense.

What are some common types of personal insurance?

Common types of personal insurance include health insurance, auto insurance, life insurance, and renters insurance.

Why is it important to track your spending?

Tracking spending helps identify unnecessary expenses, stick to a budget, and improve overall financial health.

What is the importance of saving early for retirement?

Saving early for retirement allows individuals to take advantage of compound interest and ensure a comfortable financial future.

What is a credit report?

A credit report is a detailed summary of an individual's credit history, including information about loans, credit cards, and payment history.

What is creditworthiness?

Creditworthiness is the assessment of an individual's ability to repay borrowed money, often based on credit history and score.

What is identity theft?

Identity theft occurs when someone steals personal information, such as a Social Security number, to commit fraud or other crimes.

What is the difference between short-term and long-term financial goals?

Short-term financial goals are objectives to be achieved within a year or two, while long-term financial goals take longer to achieve, often several years.

What is a 401(k) plan?

A 401(k) plan is an employer-sponsored retirement savings plan that allows employees to save and invest for retirement with tax advantages.

What is the difference between a 401(k) and an IRA?

A 401(k) is an employer-sponsored plan, while an IRA (Individual Retirement Account) is a personal retirement account that individuals can open independently.

What is diversification in investing?

Diversification involves spreading investments across different assets to reduce risk.

What is risk tolerance?

Risk tolerance is the degree to which an individual is willing to take financial risks in their investments.

What is an investment?

An investment is the act of putting money into assets such as stocks, bonds, or real estate with the expectation of earning a return.

What is a stock?

A stock represents a share of ownership in a company and entitles the holder to a portion of the company's profits.

What is a bond?

A bond is a type of loan where the investor lends money to a corporation or government, which pays interest over time.

What is a mutual fund?

A mutual fund is an investment vehicle that pools money from many investors to buy a diversified portfolio of stocks, bonds, or other securities.

What is the stock market risk?

Stock market risk refers to the possibility that the value of stocks may decline due to market fluctuations or economic conditions.

What is a certificate of deposit (CD)?

A CD is a savings account offered by banks with a fixed interest rate and a specified maturity date.

What is a loan?

A loan is money that is borrowed and must be paid back with interest over a specified period.

What is a student loan?

A student loan is money borrowed to pay for educational expenses, which must be repaid with interest after graduation or when the student leaves school.

What is credit card debt?

Credit card debt occurs when a person borrows money to make purchases on a credit card and carries a balance that accrues interest.

What is the credit limit?

The credit limit is the maximum amount of credit a lender is willing to extend to a borrower on a credit card or loan.

What is a minimum payment?

A minimum payment is the smallest amount a credit card holder must pay each month to keep the account in good standing.

What is a debt-to-income ratio?

The debt-to-income ratio is a measure of an individual's monthly debt payments compared to their gross monthly income, used by lenders to evaluate creditworthiness.

What is a secured loan?

A secured loan is a loan that is backed by collateral, such as a car or home, which the lender can seize if the borrower fails to repay.

What is an unsecured loan?

An unsecured loan is a loan that is not backed by collateral, such as a personal loan or credit card debt.

What is a credit limit increase?

A credit limit increase is when a lender extends more credit to a borrower, typically after demonstrating good credit history.

What is the impact of missed loan payments?

Missed loan payments can lead to late fees, higher interest rates, and damage to your credit score.

What is a payday loan?

A payday loan is a short-term loan that is typically due on the borrower's next payday, often carrying high-interest rates.

What is a credit inquiry?

A credit inquiry occurs when a lender checks an individual's credit report as part of the process of granting credit or a loan.

What is bankruptcy?

Bankruptcy is a legal process where individuals or businesses unable to pay their debts seek relief through the court system.

What is debt consolidation?

Debt consolidation is the process of combining multiple debts into one loan, often with a lower interest rate, to simplify repayment.

What is a credit score range?

Credit scores typically range from 300 to 850, with higher scores indicating better creditworthiness.

What is the role of a cosigner in a loan?

A cosigner agrees to take on the responsibility of repaying a loan if the primary borrower defaults, often helping the borrower get approved.

What is a home equity loan?

A home equity loan is a loan where the borrower uses the equity in their home as collateral to secure the loan.

What is a personal loan?

A personal loan is an unsecured loan that can be used for various personal expenses, such as medical bills, home improvements, or vacations.

What is interest-only payment?

An interest-only payment is a payment where the borrower only pays the interest on the loan, with the principal amount remaining unchanged.

What is a credit card balance transfer?

A balance transfer involves moving credit card debt from one card to another, usually to take advantage of lower interest rates or promotional offers.

What is a financial plan?

A financial plan is a comprehensive strategy for managing finances, including budgeting, saving, investing, and preparing for future financial goals.

What is a short-term financial goal?

A short-term financial goal is an objective that can be achieved within a year or two, such as saving for a vacation or a new phone.

What is a long-term financial goal?

A long-term financial goal is an objective that requires several years to achieve, such as saving for retirement or buying a house.

What is the importance of financial literacy?

Financial literacy is important because it enables individuals to make informed decisions about managing money, saving, investing, and avoiding debt.

What is a spending plan?

A spending plan is a budget that outlines how income will be allocated to various expenses, helping individuals prioritize and control spending.

What is an asset?

An asset is anything of value or a resource owned by an individual or business, such as cash, property, or investments.

What is a liability?

A liability is a financial obligation or debt owed by an individual or business, such as loans or credit card balances.

What is financial independence?

Financial independence refers to the ability to support oneself financially without relying on employment, often through passive income or savings.

What is a cash flow statement?

A cash flow statement is a financial document that shows the inflows and outflows of cash over a specific period, helping individuals or businesses monitor their liquidity.

What is the importance of reviewing and adjusting your financial plan?

Regularly reviewing and adjusting your financial plan helps ensure that you stay on track with your goals, respond to changes in income or expenses, and adapt to life events.