Chapter 8

Question 1

the commitment of resources to a project or purpose that is expected to bring future profit to the investor

Answer 1

investment

Question 2

what takes a good percentage of national resources in advanced economies

Answer 2

research and development

Question 3

a major cause of personal poverty is

Answer 3

lack of knowledge of how to save a portion of one’s income

Question 4

one who borrows money or capital

Answer 4

debtor

Question 5

one who lends money or capital

Answer 5

creditor

Question 6

if one invests his money or goods in someone else’s enterprise, one will usually be paid a reward that is called

Answer 6

interest or dividend

Question 7

two things a wise investor will seek to find:

Answer 7

1. best use for his money
   2.invest savings in way that will bring most good

Question 8

the most common type of bank accounts

Answer 8

checking account

Question 9

a checking account is a popular form of

Answer 9

transaction account

Question 10

an account that allows checks to be written up to the dollar amount that the account holder has deposited

Answer 10

checking account

Question 11

an account holder’s written order that authorizes his bank to withdraw funds from his account

Answer 11

check

Question 12

transaction accounts are not regarded as a good form of savings because

Answer 12

little or no interest is paid on transaction accounts

Question 13

a more efficient form of savings account which is a bank account that allows the account holder to earn interest on his deposits

Answer 13

savings account

Question 14

two types of saving accounts that pay higher rates of interest

Answer 14

CDs (certificate of deposits)
money market accounts

Question 15

an account that guarantees a certain interest rate and has a specified maturity date

Answer 15

CD or certificate of deposit

Question 16

an account that allows limited transactions and pays an interest rate that changes with the demand for loans

Answer 16

money market account

Question 17

to open a money market account, the account holder is often required to make

Answer 17

significant initial deposit

Question 18

insures the money in each type of account up to at least $250,000

this corporation was created by Congress shortly after people lost savings in bank crashes during the Great Depression

Answer 18

Federal Deposit Insurance Corporation (FDIC)

Question 19

a more specialized form of an investment which is a contract between two parties in which one party protects the other against certain types of loss in exchange for payments

Answer 19

insurance

Question 20

payments put towards insurance

Answer 20

premiums

Question 21

form of investment saving which is an arrangement provided by an individual’s employer for the intent of providing for the employee’s retirement from work

Answer 21

pension plan

Question 22

two types of pension plans

Answer 22

defined benefit plan
defined contribution plan

Question 23

pension plan in which an employer promises to pay an employee a certain amount per month after retirement based upon employee’s salary and length of service

Answer 23

defined benefit plan

Question 24

pension plan in which an employer does not promise an employee any certain amount upon retirement, and the employer and employee are required to contribute regularly to a special tax-sheltered retirement account set up for employee

Answer 24

defined contribution plan

Question 25

the resources corporations gather by selling ownership in their businesses

Answer 25

stocks

Question 26

a legal entity which is distinct from the people who own it

Answer 26

corporation

Question 27

equal portions of a corporations stock that each owner of a corporation holds

Answer 27

shares

Question 28

no individual _______ owns the whole business

Answer 28

stockholder

Question 29

provides protection to stockholders

Answer 29

limited liability

Question 30

a limited liability says that if a corporation fails or declares bankruptcy, the individual stockholders

Answer 30

do not personally have to pay the firm’s creditors

Question 31

shares of a corporation’s profit

Answer 31

dividends

Question 32

two types of dividends

Answer 32

cash dividend (payment in the form of cash)
stock dividend (payment in the form of additional stock)

Question 33

a person can invest in a corporation by buying

Answer 33

common stock (holders can vote concerning matters;
reward fluctuates with income)
preferred stock (receives fixed amount if company makes
enough profit in a year)

Question 34

a document that guarantees the bondholder the amount of his original investment plus a specific rate of interest by a certain date

Answer 34

bond

Question 35

investment companies that combine the resources of all the shareholders and invest the money in a wide variety of areas

Answer 35

mutual funds

Question 36

assets that flow easily since they can be converted into other investments or cash without much time or difficulty

Answer 36

liquid investments

Question 37

three key elements that determine how much your investment will grow

Answer 37

1. time
2. rate of return
3. amount invested

Question 38

the biggest form of saving for many Americans

Answer 38

federal Social Security system

Question 39

form of social insurance that was enacted in 1935 in which citizens make payments to the government to be insured to some extent against poverty in old age, the mounting medical expenses of later years, the cost of crippling personal injuries, the loss of a parent in childhood etc

Answer 39

Social Security Act

Question 40

many Americans pay _________ in Social Security taxes than they pay in federal and state income taxes

Answer 40

more

Question 41

the federal government, in cooperation with the _______________________, uses the immense sums annually paid into the system for the government’s current expenditures, including welfare system and its numerous programs

Answer 41

Social Security Administration

Question 42

some economists and others say that Social Security should not be described as a form of

Answer 42

saving

Question 43

year of the Social Security Act

Answer 43

1935