Economics Final Exam Study Guide

Which of the following best explains why students should learn about personal finance?

a. Learning to manage money at this stage can eliminate financial mistakes and promote huge financial benefits for the future.

b. Personal finance skills are better learned through trial and error.

c. Personal finance skills are highly complex and require a great deal of time to learn.

d. Learning to manage money will help you achieve a profitable career.

Key components of financial planning include all of the following except:

a. Write out a detailed plan for accomplishing your goals.

b. Replace money myths with money truths.

c. Allow your financial planner to make all of your major money decisions.

d. Regularly monitor and reassess your financial plan.

Which of the following statements best describes how Americans are being outsmarted by banks and other lenders?

a. Credit is marketed so well that we desire to have it while completely dismissing the fact that interest rates and fees continue to destroy our financial well-being.

b. We are taught that we can buy happiness.

c. Buying things on credit has become acceptable in our culture.

d. We are driven by consumerism.

Personal financial success is primarily the result of:

a. Managing your money behavior

b. Winning the lottery

c. Generous welfare and unemployment programs

d. Inheriting money from your parents

Which of the following statements best explains why income alone does not determine wealth?

a. Investing is the only factor that contributes to wealth building.

b. Income alone does determine a person’s wealth.

c. Only people who are natural savers can become wealthy.

d. How much money a person makes does not dictate his or her spending and saving behavior.

Which of the following is a consequence of spending more than you make?

a. Missed opportunity to save and invest.

b. Stress

c. A cycle of debt

d. All of the above

Which of the following is not a true statement?

a. Americans learned to borrow amidst post-WWII prosperity.

b. The credit industry in America has not changed much since 1917.

c. After 1970, consumer debt skyrocketed.

d. As banks made higher profits, they were willing to lend more money to consumers.

When it comes to managing money, success is about ____ % knowledge and ______% behavior.

a. 50, 50

b. 60, 40

c. 80, 20

d. 20, 80

The widespread financial insecurity of Americans is primarily because:

a. The income of Americans are low

b. The saving rate of Americans is low and many borrow in order to spend more than they earn.

c. Government programs are unavailable to help people when they are disabled or experience unemployment.

d. Most Americans save a high proportion of their income.

Which of the following is not a factor in becoming money smart?

a. Have knowledge of basic math.

b. Learn the language of money.

c. Manage your behavior with money.

d. Learn how to read your credit card statements.

Which of the following is not a benefit of understanding your own money personality?

a. Recognizing who you are allows you the opportunity to grow and learn.

b. Once you know your money personality, you can develop a financial plan that works for you.

c. Knowing your money personality allows you to excuse excessive spending because it is simply part of your nature.

d. None of the above.

Why was the use of credit uncommon prior to 1917?

a. Laws prevented lenders from charging high interest rates.

b. Borrowing money was generally not socially acceptable.

c. Lending money to others was not profitable.

d. All of the above.

When it comes to personal finance, the math is easy. What's challenging is managing your _______.

a. Income

b. Friends

c. Bank account.

d. Behavior

Which of the following is not a reason credit is marketed heavily to consumers in the United States?

a. The credit industry has become extremely profitable.

b. There is strong consumer demand for big-ticket items.

c. Since 1920, credit laws in the United States have been relaxed in an attempt to create a mainstream alternative to loan sharks for the working class.

d. The use of credit is not socially accepted in the United States.

During the Great Depression, New Deal policymakers came up with mortgage (home loans) and consumer lending policies that convinced commercial banks that:

a. Consumers would not be willing to use credit, since borrowing money for large purchases had not previously been an option for the middle class.

b. They would not be able to compete with loan sharks in the industry of consumer lending.

c. Consumer credit could be profitable.

d. Consumer credit was not a profitable industry.

Which of the following steps is the First Foundation?

a. Get out of debt.

b. Build wealth and give.

c. Save a $500 emergency fund.

d. Pay cash for your car.

Instead of borrowing money for large purchases, you should set money aside in a ____ over time and pay with cash.

a. Emergency fund

b. Sinking fund

c. Credit card fund.

d. Mortgage fund.

What does it mean to have a negative savings rate?

a. Saving for something that is a want instead of a need.

b. Having a fully funded emergency fund

c. Having no savings at all

d. Spending more money than you make and acquiring debt.

The saving habits of Ben and Arthur best illustrate which principle of saving?

a. The length of time money is invested matters.

b. The amount of the initial investment is the key.

c. Rate of return matters.

d. Both A and C

This principle suggests that a certain amount of money today has different buying power than the same amount of money in the future. This is due to both the opportunity to earn interest on the money and because inflation will drive prices up, thereby changing the ʺvalueʺ of the money.

a. Opportunity cost

b. Time value of money

c. Interest rate

d. Inflation

For which of the following should you save?

a. Purchases

b. Wealth building

c. Emergency fund

d. All of the above

Using the sinking fund approach, how much do you have to save each month to buy a $4,800 car one year from now?

a. $400

b. $300

c. $275

d. $500

At your age, a fully funded emergency fund should be:

a. $500

b. $5,000

c. $100

d. $1,000

Which of these is not a key to saving money?

a. Focus

b. Making saving a habit and a priority

c. Your income

d. Discipline

Which of the following is a reason that people donʹt save money?

a. They lack discipline.

b. They do not live on a budget.

c. They lack focus.

d. All of the above

Which of the following is not one of the three basic reasons for saving money?

a. Emergency fund

b. Large purchases

c. Have money available to lend to friends.

d. Build wealth.

Which of the following is not a reason your emergency fund should be kept in a separate savings account away from your spending money?

a. So that you do not get your spending and saving money confused.

b. So that it is clear what money is only to be used for emergencies.

c. So that it is not too easy to access.

d. So that your emergency fund savings can earn a lot of interest.

Why is having a fully funded emergency fund so important when it comes to your financial well-being?

a. As long as you have a good-paying job, you really donʹt need an emergency fund.

b. The purpose of an emergency fund is to set money aside for unexpected financial emergencies and to provide a sense of financial security.

c. The purpose of an emergency fund is to have money set aside for large purchases, like vacations.

d. None of the above

Saving is about:

a. Contentment and emotion

b. Contentment and earning more money.

c. Making more money and discipline

d. Pride and greed.

Why should interest earned not be a factor with your emergency fund?

a. Inflation can eat up the interest earned.

b. Interest-bearing accounts at banks earn a high rate of interest, therefore, interest is not a concern.

c. The emergency fund is not intended to grow wealth.

d. None of the above

47% of Americans have less than $1,000 saved for a(n).

a. Emergency

b. Car

c. Retirement fund

d. New smartphone

You'll have less freedom with your money if you . . .

a. Invest in the stock market.

b. Are paying for things in your past

c. Put money in a bank account.

d. Make less than $35,000.

Once you have a $500 emergency fund, you should . . .

a. Start putting it toward debt.

b. Invest it in the stock market to grow your money.

c. Save it until you have an emergency.

d. Use the money to pay for health insurance.

The first step you should take when you want to make a large purchase is . . .

a. Ask your parents to loan you the money with low interest.

b. Get a new credit card.

c. Decide how much you'll need to save and the time frame you want to save it in

d. Sell something and use the proceeds.

The best way to build wealth is to start investing early. You should start investing money . . .

a. Once you have a fully-funded emergency fund

b. Once you're out of college, living debt-free, and have 3–6 months of living expenses saved.

c. When the stock market is performing really well.

d. As soon as you have extra cash.

Why do some accounts, like savings accounts at your local bank, earn interest?

a. Because you deposit money, adding to your principal each month.

b. Because the bank pays you to use your money

c. Because those accounts always have great interest rates

d. Because of inflation

It's not IF an emergency will happen, but _____.

a. How.

b. Where.

c. Why.

d. When.

If you really want to save money, you've got to . . .

a. Fly economy class.

b. Live on less than you make.

c. Invest in a Roth IRA

d. Have a financial advisor.

The only place you should keep your emergency fund money is...

a. A savings account or money market account.

b. A safe in your bedroom

c. A Roth IRA

d. An envelope in a safe place

If people saved the equivalent of a car payment each month for a year or two (instead of spending it on payments and interest), they could have enough money to buy a car with cash for much cheaper!

a. True

b. False

Which two habits are the most important for building wealth and becoming a millionaire?

a. Working a high-paying job and relying on a trust fund

b. Always paying off your credit card on time and putting extra money into a retirement account

c. Investing into the right stocks and using a private CPA

d. Consistently investing money and patience to give it time to grow

The interest rate on a savings account determines . . .

a. How much money you need to have to open the account

b. How much you will pay the bank to manage the account

c. The amount of time your money will be in the account

d. How quickly your money will grow over time

Debt is a tool to use to make you wealthy.

a. True

b. False

You should budget in this order: giving, savings, spending.

a. True

b. False

_____ is a millionaire's best friend.

a. Accrued interest

b. Compound growth

c. High returns

d. Profit sharing.

The purpose of an emergency fund is to . . .

a. Be able to cover an unexpected expense with cash and protect you from having to pile up debt when something goes wrong.

b. Teach you how to invest in growth stock mutual funds.

c. Have some extra money in a checking account in case you need to transfer some to your spending categories.

Why do stores rarely advertise the full price of big purchases like smartphones?

a. They are trying to keep their prices competitive.

b. Hiding the full price allows stores to change their pricing as the market fluctuates.

c. By showing you only the monthly payment, they make the product seem affordable.

d. They are trying to cheat you.

Compound interest is earned at a fixed rate, while ________ is an average based on an investment's past performance.

a. The principal

b. Interest rate

c. The Fifth Foundation

d. Compound growth

What is the goal of an emergency fund?

a. To pay for large purchases

b. To save for your children's college expenses

c. To have cash on hand for unexpected events

d. To pay for health insurance

The main reasons for saving your hard-earned money are . . .

a. Emergencies, large purchases, and wealth building

b. Paying for your dream home, buying your dream car, and going on your dream vacation

c. Buying gifts, donating to charities, and building up a college fund for your kids

d. Investing, indulging, and influencing

Once you're out of school, have started your career, and have zero debt, your emergency fund should have...

a. 3–6 months of income

b. 3–6 months of living expenses

c. $3,000

d. $5,000.

What is the Third Foundation?

a. Pay cash for your car.

b. Pay cash for college.

c. Save for retirement.

d. Create a monthly budget.

The top three careers reported among millionaires were ______, ______ , and ______.

a. Pro athletes; bankers; CEOs

b. Lawyers; surgeons; accountants

c. Celebrities; developers; writers

d. Accountants; engineers; teachers

In order to outpace inflation when investing, your investments need to have a lower rate of return than the rate of inflation.

a. True

b. False

While saving money isn't easy at first, it will make your life a lot _______ in the future if you make it a habit now.

a. Easier

b. Harder

c. Poorer

d. Longer

Most millionaires make over $100,000 a year.

a. True

b. False

Which of these would count as a legitimate reason to use your emergency fund?

a. You forgot to budget for your mom's birthday gift.

b. You have a fancy event coming up but you already spent all of your Clothing budget category

c. The smartphone you've wanted just went on sale.

d. Your car battery died.

The amount of interest charged on a debt but not yet collected is called . . .

a. Accrued interest.

b. Interest rate

c. Same-as-cash

d. Growth rate

One of the main reasons we build wealth is so that we can . . .

a. Give to those in need.

b. Spend it all on ourselves.

c. Impress the people around us.

d. Prove that we are successful.

Which principle says that a certain amount of money today is worth more than the same amount in the future?

a. Inflation

b. Rate of return

c. The time value of money

d. Principal interest

A car used by a messenger service is a type of

a. Capital

b. Labor

c. Trade-off

d. Opportunity cost.

What is the basic problem of economics?

a. Pricing

b. Scarcity

c. Consumer behavior

d. Government

Economics is primarily concerned with which of the following?

a. Future cost of goods

b. Values and objectives of a society

c. Use of resources

d. Methods of production

Entrepreneurship refers to the ability to

a. Manage other people.

b. Adapt technology efficiently.

c. Start new businesses, introduce new products and processes, and improve management techniques.

d. Borrow capital successfully and expand an existing business to meet customer demand.

After creating an economic model, how can an economist determine if the model does a good job of representing reality?

a. By asking other economists for their opinions on the matter

b. By testing the model with facts collected from the real world

c. By recording the factors of production for an imaginary business

d. By formulating theories about how the economy works.

The need to make choices arises because ____.

a. some things are not limited.

b. shortages are a constant situation.

c. everything that exists is limited.

d. people need to share their resources.

The four factors of production are the resources of land, labor, capital and ___.

a. Productivity

b. Entrepreneurship

c. Technology

d. Services

The human effort directed toward producing goods and services is known as _____.

a. Labor

b. Goods

c. Capital

d. Technology

What do we call the advance in knowledge that leads to new and improved goods and services and better ways of producing them?

a. Capital

b. Technology

c. Economics

d. Labor

Which of the following is defined as a graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time?

a. Trade-off

b. Opportunity cost

c. Production possibilities curve

d. Guns versus butter

Which of these statements describes a disadvantage of a traditional economy?

a. Everyone knows his or her role.

b. New ways of doing things are encouraged.

c. New ways of doing things are discouraged.

d. Difficult economic decisions are made by the state.

Which of these economic systems have the least in common?

a. Market economy and capitalism.

b. Command economy and socialism.

c. Command economy and capitalism.

d. Free-enterprise economy and market economy.

Which of these statements is descriptive of a market economy?

a. Most media is state-owned and operated.

b. The government determines what is produced and by whom.

c. Major economic decisions are made for individuals, not by them.

d. Major economic decisions are made by individuals, not for them.

In which of these systems is government most likely to provide people with goods and services they could not otherwise afford?

a. A market economy

b. A socialist economy

c. A traditional economy

d. A free-enterprise economy

Which of these helps explain why mixed economies develop?

a. People become unhappy with aspects of their current economy.

b. People are seldom exposed to the ideas and technologies of other cultures.

c. Government control of an economy tends to make a nation more prosperous.

d. Government control of an economy leads to a diversity of economic approaches.

Which of these countries has an economy most similar to that of the former Soviet Union?

a. Sweden

b. Norway

c. South Korea

d. North Korea

Which of the following is a feature of a command economy that distinguishes it from a socialist economy?

a. All production is managed by the government.

b. All economic decisions are made by the free market.

c. All economic decisions are based on custom and habit.

d. Some degree of private ownership and activity is allowed.

In a transitioning economy, why would privatization tend to raise a nation's overall standard of living?

a. People are less likely to assume the risk of entrepreneurship.

b. It places the means of production in the hands of the government.

c. People are more likely to be productive when it benefits them personally.

d. It places a nation’s ruling class in a position to administer the economy efficiently.

Which of the following is a cause of struggle in the process of privatization?

a. People must adjust to government control of their economy.

b. People must decide how best to get along without a free market.

c. People must adjust to the costs and risks that are part of capitalism.

People must become

Which of these is the most striking example of the costs and risks of pure capitalism?

a. The Gosplan.

b. The Five-Year Plan.

c. The Great Depression

d. The Great Leap Forward.

One of the characteristics of a capitalist free enterprise economy is ______.

a. The minimum wage

b. Consumerism

c. Voluntary exchange

d. Central planning

The economic system of the United States is considered a ________.

a. Free market capitalist economy.

b. Command economy.

c. Socialist economy.

d. Traditional economy.

______ protect consumers against harm from products on the market.

a. Franchises.

b. Profit motives.

c. Private property rights.

d. Government regulations.

Which of the following is largely responsible for the growth of a free enterprise system?

a. Government

b. Profit motive.

c. Gross Domestic Product

d. Market efficiency

Consumers in a free enterprise economy ultimately determine ______ to produce.

a. When

b. How

c. What

d. Where

Markets in the free enterprise system are seldom regulated by _______.

a. Businesses

b. The government

c. Consumers

d. Entrepreneurs

The four factors of production are land, labor, capital, and ______.

a. Entrepreneurs

b. Franchises

c. Inflation

d. The government

A general rise in the level of prices over time is known as _______.

a. A catalyst

b. Voluntary exchange

c. Profit

d. Inflation

What have some states done to protect workers from adverse economic events such as layoffs and illnesses?

a. They set up support groups.

b. They set up unemployment compensation programs.

c. They provided every worker with insurance.

d. They gave workers more time off.

Economic equity means that it is illegal to discriminate on the basis of age, sex, race, religion, or ________.

a. Income

b. Status

c. Disability

d. Political views

A credit score is an indicator of how well someone pays off their debt, not how well they handle money.

a. True

b. False

When you buy with credit, you typically spend more than you would with cash or a debit card.

a. True

b. False

The smartest way to buy a car is to ____.

a. Lease it

b. Finance it but pay the debt as quickly as you can

c. Take out a personal loan for it

d. Pay for it in cash

What is the best way to avoid falling into debt?

a. Use credit to pay for large expenses now so that you have plenty of time to pay it off.

b. Only buy things that you can purchase with cash.

c. Use airline miles earned through a credit card to help pay for a vacation.

d. Take out a small loan for any purchases over $1,000.

Credit isn't a wealth-building tool, it's a business that makes money for . . .

a. Individuals who use credit cards

b. Stock market investors, tax agencies, and financial advisors.

c. Local businesses and homebuilders

d. Credit card companies, banks, and lenders.

A car is a depreciating asset.

a. True

b. False

When looking over your credit report, it's important to make sure . . .

a. No lines of credit have been opened under your name without your knowledge.

b. Your credit score is over 700.

c. At least five businesses have requested your credit report.

d. The information listed is over 10 years old.

Credit card companies charge stores a 2-3% fee for every purchase made with credit cards. This is called a(n) . . .

a. Merchant fee

b. Cash advance fee.

c. Annual fee

d. Over-the-limit fee

The ____ is the total amount of the car loan, plus taxes and fees.

a. Principal

b. Value

c. Interest

d. Term

How you spend and give your money . . .

a. Can't be changed, even if you try.

b. Is the most important thing in life.

c. Is a reflection of your personal values.

d. Doesn't matter until you're in your 40s.