Economics Unit Test 1

Question 1

Medium of Exchange

Answer 1

Meaning: Money helps us trade and do commerce easily. Example: Instead of giving a cashier a book of yours for a new one you can just give a certain amount of cash

Question 2

Standard of Value

Answer 2

Meaning: Money lets us compare the value of goods and services on a scale. Example: Let’s say an ice cream costs twelve chocolates and the other costs five pieces of taffy.

Question 3

Store of Value

Answer 3

Meaning: Money keeps its value over time. Example: Like how the Mona Lisa has stayed the same looking the same.

Question 4

Services provided by a bank:

Answer 4

Cashing checks, Issue credit cards, Change foreign currency into dollars and vice versa, Provide safe deposit boxes for storing valuables

Question 5

Describe how banks create money. (Think about how Slim created money in Pine Gulch.)

Answer 5

They channel funds from savers and borrowers since they are the financial intermediaries. They take the money deposited into various accounts and use it to make loans.

Question 6

Checking Account Advantages:

Answer 6

Banks will let you write a certain amount of checks before charging you with a checking fee.

Question 7

Checking Account Disadvantages:

Answer 7

You have a specific amount of money you can take out (as much as you have in there.) Some establishments won’t take it as payment. The fee that comes with writing a check. Earns little to no interest.

Question 8

Savings Account Advantages:

Answer 8

Money put into savings accounts earn more than money in checking accounts. You can have your funds in there as long as you want. You can withdraw it whenever you want and withdraw as much as you want. Savers take out money by using ATM’s or giving withdrawal slips to tellers.

Question 9

Savings Account Disadvantages:

Answer 9

The return on money is low and is slightly less liquid than a checking account.

Question 10

How is a money market savings account different from a regular savings account?

Answer 10

Require minimal balance depending on bank and can only withdraw certain amount. Pays more interest than a regular savings account

Question 11

What is a time deposit, or certificate of deposit (CD)? What are the advantages and disadvantages of saving through a time deposit? DEFINITION:

Answer 11

definition: A bank account that is interest bearing and has a date of maturity

Question 12

What is a time deposit, or certificate of deposit (CD)? What are the advantages and disadvantages of saving through a time deposit? ADVANTAGES:

Answer 12

advantages: earn higher returns

Question 13

What is a time deposit, or certificate of deposit (CD)? What are the advantages and disadvantages of saving through a time deposit? DISADVANTAGES:

Answer 13

disadvantages: Lower liquidity, tie up cash for a period of time, if you take your money out of the account before the end date you pay a penalty fee

Question 14

Why was the Federal Reserve System created?

Answer 14

Its customers are the nation’s thousands of banks. They want to keep the nation’s banking system stable and healthy.

Question 15

Functions:

Answer 15

Holding reserves: the Fed keeps a fraction of it’s deposits in a reserve
Providing cash and loans: when a bank needs to meet withdrawal demands it supplies it from the banks account. Clearing checks: when you write a check to a store it transfers to the stores account at a different bank. Linking banks electronically: The federal bank and almost all of the nation’s banks are linked electronically

Question 16

What does it mean to “Pay Yourself First!”? How can you make sure you do this for yourself? MEANING:

Answer 16

Deposit money into your savings account before spending on anything else.Purchase an item you want before something you need. Pay all of your mandatory expenses before paying for optional expenses. Obtain an additional job to supplement your income.

Question 17

What does it mean to “Pay Yourself First!”? How can you make sure you do this for yourself? MAKING IT HAPPEN AUTOMATICALLY:

Answer 17

You can set it up so when you get a paycheck a certain amount of money into your account and then spend the rest on something you want and your necessities.

Question 18

Retail Banks Advantages:

Answer 18

Offers banking services to small businesses and consumers. Personalized service and access to good advice from professionals to navigate finances more effectively.

Question 19

Retail Banks Disadvantages:

Answer 19

Expensive and time consuming. Higher fees.

Question 20

Credit Union Advantages:

Answer 20

Lower borrowing rates, variety of products, insured deposits, more personal service, educational resources, and member owned

Question 21

Credit Union Disadvantages:

Answer 21

Membership required, not the best rates, limited accessibility, and may offer fewer products or services.

Question 22

Internet Banks Advantages:

Answer 22

Better rates and lower fees, better online experiences

Question 23

Internet Banks Disadvantages:

Answer 23

No personal relationships, less flexibility with transactions, absence of ATMs, more limited services

Question 24

What are the six parts of a check that you need to fill in when writing a check (Note: one of the six is optional)?

Answer 24

1. Date the check 2. The recipient of the check 3. Payment amount in numbers 4. Payment amount in words 5. Write the memo 6. Sign the check

Question 25

Where is the routing number located on a check?

Answer 25

The first set of numbers on the lower left of the check

Question 26

What is the purpose of the routing number?

Answer 26

Identifies the financial intuition in which the money is coming from and where the money is going to be given to you

Question 27

What are some of the fees that banks charge for services or as penalties?

Answer 27

insufficient funds fee: can occur when you don’t have enough money in your checking account to cover
b. overdraft protection fee: no fee for Overdraft Protection transfers or advances from accounts linked for
c. ATM withdrawal fee: bank ATM fees can vary from as low as $2.50 per transaction to as high as $5 or
d. monthly maintenance fee: a charge that account holders may incur monthly just for having a checking