Savings/Investment Part 2

Question 1

What are savings accounts?

Answer 1

Low risk investments which offer a variable interest rate, and your funds can be easily accessed

Question 2

What does a variable interest rate mean?

Answer 2

If the market rates go down, the amount of interest you earn will also go down

Question 3

What are term deposits?

Answer 3

A secure, low risk investment which offers higher rates of interest in return for you agreeing to invest for a set period of time

Question 4

What are the other features of term deposit accounts?

Answer 4

You lock away your money to earn interest at a fixed rate, therefore fluctuations in the market do not affect your funds, and you cannot make withdrawals or deposits until the term is up

Question 5

Are shares a cash investment?

Answer 5

No, they are not a cash investment

Question 6

Which investments are likely to use compound interest?

Answer 6

Savings accounts, credit cards and mortgages

Question 7

Which investment is unlikely to use compound interest?

Answer 7

Term deposit accounts

Question 8

Why can paying with cash instead of a credit card save you money?

Answer 8

Cash is limited to what you have on you, it eliminates the risk of debt and you cannot make online purchases

Question 9

What happens if interest rates increase at the same rate as inflation?

Answer 9

You are no better or worse off financially

Question 10

What do property and shares both provide?

Answer 10

Income stream and capital gain

Question 11

What are government bonds?

Answer 11

Bonds issued by the government to raise funds from the general public in return for a fixed interest rate, over a very long period of time

Question 12

Why do people purchase property?

Answer 12

In the hope that they will sell it at a higher price and make profit, or generate income in the form of rent

Question 13

What happens when you buy shares?

Answer 13

You are buying part-ownership of a business, in return for access to an income stream in the form of dividends

Question 14

What is superannuation?

Answer 14

A government requirement for employers to pay 9.5% of an employee’s wage into a specially designed fund to ensure that employees are financially secure when they retire

Question 15

What are collectibles?

Answer 15

Items that are relatively rare in number, such as works of art, sporting memorabilia or antique furniture

Question 16

What is an asset?

Answer 16

A resource which will hopefully provide future economic benefits

Question 17

Why is a motor vehicle generally not considered an investment?

Answer 17

Because it is likely to lose value rather than gain value over time

Question 18

What is the economic definition of an investment?

Answer 18

The process of capital creation or accumulation of stocks

Question 19

What are some examples of investment goods as defined by an economist and why are they defined as such?

Answer 19

Machinery, vehicles, computers and technology, because they will assist in the production of other goods and services

Question 20

Why do economists consider machinery as an investment?

Answer 20

Because it will assist in producing goods and services, which can be later sold for profit

Question 21

Why is the purchase of shares not considered an investment by an economist?

Answer 21

Because shares do not assist in the production of goods and services