Chapters 8 & 9

Question 1

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

Answer 1

investment

Question 2

does research and development happen more in the public or private sector?

Answer 2

private

Question 3

the reward one receives for investing his money or goods in someone else’s enterprise

Answer 3

“interest” or “dividends”

Question 4

one who borrows money or capital

Answer 4

debtor

Question 5

one who lends money or capital

Answer 5

creditor

Question 6

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

Answer 6

checking account

Question 7

the type of account that a checking account is

Answer 7

transaction account

Question 8

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

Answer 8

check

Question 9

a bank account that allows the account holder to earn interest on his deposits

Answer 9

savings account

Question 10

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

Answer 10

certificate of deposit

Question 11

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

Answer 11

money market account

Question 12

governmental agency that insures private banks and accounts up to $100,000

Answer 12

FDIC

Question 13

a contract between two parties in which one party protects the other against certain types of loss

Answer 13

insurance

Question 14

amount paid to an organization in exchange for insurance coverage

Answer 14

premium

Question 15

an arrangement provided by an individual’s employer for the intent of providing for the employees’s retirement from work

Answer 15

pension plan

Question 16

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

Answer 16

defined benefit plan

Question 17

type of pension plan in which the employee, the employer, or both contribute regularly to a tax-sheltered retirement account set up for the employee; money in the account is placed in stocks, bonds, and other investments

Answer 17

defined contribution plan

Question 18

the resources corporations gather by selling ownership in their businesses

Answer 18

stocks

Question 19

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

Answer 19

corporation

Question 20

equal portions of a corporation’s stock

Answer 20

shares

Question 21

a person who owns shares of stock in a corporation

Answer 21

stockholder

Question 22

legal protection provided to stockholders of a corporation; if a corporation fails or declares bankruptcy, the individual stockholders do not personally have to pay the firm’s creditors

Answer 22

limited liability

Question 23

shares of a corporation’s profit

Answer 23

dividends

Question 24

type of stock that allows holders to vote concerning corporate matters; pays dividends only after paying dividends to preferred stockholders

Answer 24

common stock

Question 25

type of stock that pays its holders an annual fixed amount in cash dividends if the company makes enough profit in a year to pay them

Answer 25

preferred stock

Question 26

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

Answer 26

bond

Question 27

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

Answer 27

mutual funds

Question 28

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

Answer 28

liquid investments

Question 29

the three key elements that determine how much your investment will grow

Answer 29

time rate of return amount invested

Question 30

enacted in 1935 to provide an American form of social income; overseen by the Social Security Administration

Answer 30

Social Security Act

Question 31

uses the immense sums annually paid into the system for the government's current expenditures, including the welfare system and its numerous programs

Answer 31

Social Security Administration

Question 32

anything that is generally accepted as a means of payment

Answer 32

money

Question 33

the three principle purposes of money

Answer 33

medium of exchange measure of value store of value

Question 33

the direct exchange of one good for another good without a standard form of money passing from hand to hand

Answer 33

barter

Question 34

Six qualities of good money

Answer 34

portability durability homogeneity divisibility constancy intrinsic value

Question 35

coined, metallic money

Answer 35

specie

Question 36

to lower the quality or value of something

Answer 36

debase

Question 37

the idea that people will save forms of money that seem more stable and valuable

Answer 37

Gresham's Law

Question 38

the asserted value of money

Answer 38

face value

Question 39

when the level of prices in the market rises because too much money is in circulation

Answer 39

inflation

Question 40

when prices decrease because money seems more valuable and stable

Answer 40

deflation

Question 41

any form of money that has been declared a valid means of payment

Answer 41

legal tender

Question 42

gold, silver, or platinum, usually found in the form of bars, ingots, or plates

Answer 42

bullion

Question 43

a system which allows banks to hold less than 100 percent of deposits in reserve

Answer 43

fractional reserve banking

Question 44

legal tender that is backed by nothing but a government's promise

Answer 44

fiat money

Question 45

the part of the money supply consisting of the money in transaction accounts, traveler's checks, and all coins and currency held outside banks

Answer 45

M1

Question 46

the part of the money supply consisting of M1 plus non checkable savings deposits, and time deposits worth less than $100,000

Answer 46

M2

Question 47

the part of the money supply consisting of M2 and time deposits worth over $100,000

Answer 47

M3

Question 48

assets that can be easily converted into M1 because they are highly liquid

Answer 48

near-monies

Question 49

federal agency responsible for producing currency and for partially overseeing the money supply

Answer 49

US Department of the Treasury

Question 50

the central banking network of the US ultimately responsible for forming American monetary policy and for controlling the national money supply

Answer 50

Federal Reserve System

Question 51

group of appointed officials who direct and supervise the Federal Reserve System

Answer 51

Board of Governors

Question 52

the Federal Reserve committee that makes decisions regarding the buying and selling of government securities

Answer 52

Federal Open Market Committee

Question 53

twelve central locations, one in each of the Federal Reserve districts, that implement the policies adopted by the Board of Governors

Answer 53

Federal Reserve Banks

Question 54

a period, usually six months or longer, during which the economy recess, or declines

Answer 54

recession