Economics unit 5
Chapter 19 Entry Test Personal Financial Literacy DIRECTIONS: Indicate the answer choice(s) that best completes the statement or answers the question. Lesson 1 - Financial Institutions and Your Money 1. What is the first thing you should do when determining where your money goes and how you can take control of your spending? A. Create a list of your bills and the items you buy. B. Consider how to reduce expenses to match your income. C. List your monthly bills and, for a month, all purchases and their prices. . Create a chart that lists your income and current, categorized expenses. 2. How do financial institutions profit from paying you interest on money you deposit in an account? A. A financial institution makes money by "buying" money. 3. The Fed sets the discount rate, which influences all other interest rates. C. The interest rate Is a percentage a bank will pay to depositors or charge to borrowers. D. The financial institution loans borrowers a portion of your deposit at higher interest rates. 3. The most common and safest type of financial institution is A. an investment bank C. a commercial bank B. a finance company D. a life Insurance company . How much money would you have in five years after depositing $1,000 in a savings account that earns compound interest of 5 percent annually? A. $1,250.00 C. $1,280.08 B. $1,276.28 D. $1,283.36 5. What type of savings account are you using when you deposit $1,000, at a fixed rate of 5 percent, for one year, with the understanding that an early withdrawal results in a penalty charge? A. passbook account B. certificate of deposit C. money market mutual fund D. money market deposit account 6. The problem with paying only the minimum due on a credit card is that .Select ALL that apply. A. paying off the balance takes longer B. introductory rates increase after a certain period of time C. the lender charges high compounding Interest on the balance D. the "loan" ends up costing more than the purchases on the card 7. A secured credit card differs from an unsecured credit card in that it Select ALL that apply. A. charges much higher interest rates B. provides a relatively safe way to start building credit C. requires an initial deposit that sets your spending limit D. limits the number of purchases that can be made in a month Lesson 2 - Business Organizations and Your Money 8. What is the best definition of the term capital formation? A. economic growth on a global scale B. increased employment opportunities C. increased demand for goods and services D. transfer of money through investments and loans 9. An evaluation of the financial advantages and disadvantages of starting a business-whether a sole proprietorship, partnership, or corporation-takes into account the potential .Select ALL that apply. A. profits C. debt liability B. tax rates D. start-up costs 10. A loan designed to help a small business with cash flow during slow periods is called A. an SBA loan C. a start-up loan B. an equity loan D. a line of credit 11. Which method of raising corporate capital requires minimal risk to the investor and ensures Copyright O McGrew+10 Edict repayment even when the corporation does not make a profit? A. selling bonds C. converting profits B. issuing stocks D. borrowing directly 12. What two factors must be balanced when deciding how to invest your money? A. buying bonds and selling bonds B. buying stocks and selling stocks C. the possibility of making money and the risk of losing it . taking undiversifiable risks and avoiding diversifiable risks 13. A Roth IRA differs from a traditional IRA in that a Roth IRA A. provides retirement income B. takes out taxes on withdrawal C. takes out taxes before deposit D. comes with greater risks but higher returns 14. What do families do when they cannot afford to send their children to college? A. They ask their children to wait a few years. B. They work multiple jobs. C. They borrow money from friends. D. They acquire loans and other financial aid. 15. A scholarship differs from a grant in that a scholarship is typically A. based on financial need C. tied to academic achievement B. presented as an outright gift D. offered as an interest-free loan 16. How much money should you plan to spend each month on rent if you earn $2,000 per month at work? A. $500 C. $800 B. $600 D. $1,000 17.One advantage that owning a home has over renting an apartment is that you A. build equity C. have fewer fees to pay B. have greater mobility D. save money on utilities 18. Your renters insurance covers the contents of your apartment up to $10,000 with a $500 deductible. How much will your insurance company give you to replace $1,250 worth of electronic equipment that was stolen? A. $500 C. $1,250 B. $750 D. $10,000 19. Beyond the basic liability insurance for your car, you decide to purchase additional insurance that covers damage caused by theft, vandalism, and natural disasters. This type of coverage is called A. collision C. loss prevention B. comprehensive D. repair and replace 20. Research suggests that people who give time or money to charitable organizations tend to have _ Select ALL that apply. A. social skills C. higher incomes D. higher self-esteem B. more free time
