Test 4

Question 1

What are payments for insurance called?

Answer 1

Premiums

Question 2

What is any form of money that has been declared a valid means of payment called?

Answer 2

Legal Tender

Question 3

What are the resources corporations gather by selling ownership in their businesses?

Answer 3

Stocks

Question 4

What are bars of gold, silver, or platinum?

Answer 4

Bullion

Question 5

What is coined, metallic money called?

Answer 5

Specie

Question 6

What type of investment is a share of a corporation’s profit?

Answer 6

dividends

Question 7

What type of investment guarantees the amount of original investment plus a specified rate of interest by a certain date?

Answer 7

bonds

Question 8

What are assets that flow easily since they can be converted into other investments?

Answer 8

liquid investments

Question 9

What is an arrangement for the intent of providing for retirement from work?

Answer 9

Pension Plan

Question 10

What allows for the investment of money in a wide variety of areas?

Answer 10

mutual funds

Question 11

What legal entity is distinct from the people who own it?

Answer 11

corporation

Question 12

What protects stockholders from paying the firm’s creditors in the event of failure or bankruptcy?

Answer 12

limited liability

Question 13

What is a contract between two parties of protection against certain types of loss in exchange for payment?

Answer 13

Insurance

Question 14

What is the exchange of one good for another good without a standard of money passing from hand to hand?

Answer 14

barter

Question 15

What do governments do to their money when they add lead, copper, and iron to gold and silver coins?

Answer 15

Debase

Question 16

When too much money is circulated, what is the result?

Answer 16

inflation

Question 17

Who manages the US money supply?

Answer 17

Federal Reserve

Question 18

What are the three main components of the Federal Reserve System?

Answer 18

Federal Open Market Committee
Federal Reserve banks
Board of Governors

Question 19

Where do most of the savings needed to fund R&D in market economies come from?

Answer 19

the private sector

Question 20

What insect does Proverbs instruct people to work like?

Answer 20

Ant

Question 21

What is the theory that the variation in the money supply is the main source of economic fluctuations?

Answer 21

Monetarism

Question 22

What are the three principal purposes or functions of money?

Answer 22

medium of exchange
measure of value
store of value

Question 23

What are the three key elements that determine how much investments will grow?

Answer 23

Time
Rate of Return
Amount Invested

Question 24

What United States Department is responsible for coining and printing American money?

Answer 24

Treasury Department

Question 25

What corporation created by Congress insures the money in each type of bank account?

Answer 25

Federal Deposit Insurance Corporation (FDIC)

Question 26

What term refers to one who lends money or capital?

Answer 26

creditor

Question 27

What term refers to one who borrows money?

Answer 27

debtor

Question 28

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

Answer 28

investment

Question 29

What did the apostle Paul say was the root of all evil?

Answer 29

the LOVE of money

Question 30

What principle refers to people hoarding stable forms of money while spending less stable forms?

Answer 30

Gresham's Law

Question 31

What is legal tender that is backed by only a government's promise?

Answer 31

fiat money

Question 32

What does CD stand for?

Answer 32

Certificate of Deposit

Question 33

What type of money consists only of transaction accounts, traveler's checks, and all coins and paper money held only outside banks? (M1, M2, M3, or near-monies)

Answer 33

M1

Question 34

What is the value asserted to the worth of a coin or bill?

Answer 34

face value

Question 35

What type of investment allows an individual to receive a fixed amount of dividends before other investors?

Answer 35

Preferred stock

Question 36

What type of investment allows an individual to vote at company meetings?

Answer 36

Common Stock

Question 37

What is a written order that authorizes a bank to remove funds from an account?

Answer 37

check

Question 38

What quality should money possess that shows its availability in small or large units?

Answer 38

divisibility

Question 39

What quality should money possess that shows its stability in value?

Answer 39

constancy

Question 40

What type of account allows limited transactions and pays an interest rate that changes with the demand of loans?

Answer 40

money market

Question 41

What type of account guarantees a certain interest rate and has a specified maturity date?

Answer 41

CD

Question 42

ESSAY: | Why is the federal Social Security system a bad investment?

Answer 42

- Instead of being placed in a potentially profitable investment, the money is placed into Social Security is spent by the government. - The program is built on an unstable "pay-as-you-go" foundation. - The system could ultimately collapse. - Much or all of the money that people have paid into the program over the years could be lost. - People could place the money they currently pay for Social Security into investments that would yield much higher returns. It is not the government's responsibility to provide financially for its citizens.

Question 43

ESSAY: | Explain how the fractional reserve system of banking allows banks to hold less than 100 percent of deposits in reserve.

Answer 43

- Banks have found that they need to keep only a small fraction of total deposits on hand for day-to-day operations. - It is unlikely that all their depositors will demand all of their money at once. - By lending out portions of their deposited money, banks are creating money that is not backed by bank assets.