Final Exam Study Guide Flashcards
Eliminates the need to “time” the market when making an investment decision
Dollar cost averaging
The amount of money that you are paid for allowing a financial institution to use your money
Earned interest
Interest earned on interest
Compound interest
The most important personal finance principle
Pay yourself first
Appropriate ways for you to invest your money for the long term
Stocks, bonds, mutual funds
Relationship between time, money, and the rate of interest
Time value of money
Appropriate ways for you to save your money
Bank savings, money markets, bank cd’s
Personal finance principle based upon the adage about not putting all your eggs in one basket
Diversification
Helps you achieve your intermediate and long-term financial goals
Investing money
Helps you achieve your short-term financial goals and to prepare for an unforeseen financial emergency
Saving money
Largest corporation in the world due to its market capitalization
Apple
An example of a publicly traded corporation
McDonald’s
An example of a privately held corporation
Chick-Fil-A
Found by multiplying the total number of stock shares that a corporation has issued with the current price per share
Market capitalization
20% of all businesses in the U.S. are classified as this type of business organization; account for 90% of all the products sold and services provided
Corporation
Represents ownership in a corporation and a proportional share in the assets and profits of the issuing corporation
Stock
This stock exchange is one of the largest in the world and uses a combination of human floor traders and computers
NYSE
Tracks the performance of 30 of the largest and most widely held companies in the U.S.; most widely followed stock index in the world
DJIA
Second most widely followed stock performance indicator in the world
S&P 500
Completely computerized stock exchange
NASDAQ
Stocks of companies whose earnings are expected to grow at an above-average rate
Growth stocks
Pet Smart and Buffalo Wild Wings are examples of this type of stock
Mid-Cap stocks
Stocks that appreciate in value quickly when economic growth is strong and fall rapidly when economic growth is declining
Cyclical stocks
Stocks that remain stable during declines in the economy
Defensive stocks
Stocks of the most well established and financially sound companies
Blue-Chip stocks
Stocks of companies that pay regular and steadily increasing dividends
Income stocks
The real value of this type of investment is dependent upon the actual rarity of the item and the willingness of individuals to purchase it at the time of sale
Collectibles
Most common type of investment found in 401K’s, 403B’s, and Individual Retirement Accounts; two basic categories are actively managed and passively managed
Mutual funds
Type of investment that focuses upon the acquisition of property for the purposes of generating long term rental income or capital gains through the sale of the property
Real estate
Similar in structure to an I.O.U.; issuer promises payment over a specified period of time at an agreed upon rate of interest
Bonds
Current price of a single share of a company’s stock
Stock price
Portion of a company’s profit that is allocated to each outstanding share of stock
Earnings per share
Unique series of letters assigned to a security for trading purposes
Stock symbol
Helps an investor determine how expensive or inexpensive a stock is based upon its current price and its earnings per share
PE ratio
Helps an investor determine a stock’s value while taking into account earnings growth
PEG ratio
The total expected dividend payment from an investment
Dividend rate
Shows how much a company pays out in dividends relative to its share price
Dividend yield
Lowest price that a stock has reached during the last year
52 Week low
Highest price that a stock has reached during the last year
52 Week high
Next best alternative to a chosen activity
Opportunity cost
Land, labor, and capital
Factors of production
Are provided by lawyers, engineers, doctors, educators, etc.
Services
Market structure where there is a single producer of a good or provider of a service
Monolopy
Benefits consumers by providing them with a variety of goods at reasonable prices and producers by encouraging them to be as efficient as possible during the production process
Competition
Examples include food, clothing, shelter, and water
Needs
The fundamental problem within the study of economics
Scarcity
Three basic economic questions are answered by following established traditions, customs, and cultural norms
Traditional system
All of the potential things that could have been chosen but weren’t
Trade-offs
Focuses upon large economic issues like inflation and unemployment
Macroeconomics
Market structure where there are many producers selling identical products; are no barriers to either enter or exit the market
Perfect competition
Tangible and physical objects that can be bought, sold, or traded
Goods
Three basic economic questions are answered by the government
Command system
Study of how individuals and nations allocate their scarce resources for the fulfillment of seemingly unlimited wants and needs
Economics
Market structure that is dominated by a few large firms; some control over price and are significant barriers to both entry and exit
Oligopoly
Focuses upon economic decision making at the individual person and individual business level
Microeconomics
Three basic economic questions are answered through the interaction of supply and demand
Market system
Market structure that has many firms with some product differentiation and some control over price; minimal restrictions on entry and exit into the market
Monopolistic competition
Examples include a new iPhone X, Netflix subscription, and a diamond encrusted popsocket
Wants
Three basic economic questions are answered through a combination of the interaction of supply and demand and regulations and economic intervention by the government
Mixed System
Occurs when the quantity demanded is greater than the quantity supplied
Shortage
Scarcity of these leads to the necessity of economic decision making
Resources
Market clearing occurs at this point
Equilibrium
Two categories of this are physical and financial
Capital
Amount that producers are willing and able to produce
Supply
Occurs when the quantity supplied is greater than the quantity demanded
Surplus
Amount that consumers are willing and able to purchase
Demand
Term that is synonymous with workers
Labor
Factor of production that contains the natural resources necessary to produce goods and provide services
Land
Includes entitlement programs such as social security, Medicare, and Medicaid
Mandatory spending items
Total amount of money that is owed by the U.S.; currently in excess of $21 trillion
National debt
Program established in 1935 as a way to provide benefits to retirees, dependent children, and the disabled; single largest annual budgetary expenditure
Social security
Sales tax; have a greater economic impact on individuals that make less money
Regressive
Includes spending on environmental protection, education, highway construction, food safety inspections, and flu vaccines
Discretionary spending items
Single largest annual non-entitlement budget expenditure
Defense spending
Single largest source of annual federal revenue
Personal income taxes
Personal income taxes; have a greater economic impact on individuals that make more money
Progressive
Type of rate charged by the Fed when member banks borrow money
Discount rate
The current Chair of the Federal Reserve
Jerome Powell
Type of government security that has a period of maturity that is less than one year
Treasury bills
Type of government security that has a period of maturity that is greater than one year
Treasury notes
Buying or selling of government securities initiated by the Federal Reserve
Open market operations
Percentage of deposits that the Federal Reserve requires its member banks keep at the Fed
Reserve requirement
Another name for the payroll tax that funds both social security and Medicare
FICA
