Economics Chapter 11 Review
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60 terms
Terms | Definitions |
|---|---|
 List 2 advantages to keeping a budget. | Less of a chance of slipping into debt and keeps one more organized about their spending habits. |
| What are 3 main reasons people save money? | Special occasions, to protect against emergencies, and buy special things. |
| Advantages to a Savings Account | Liquidity, easily accessible, and FDIC insured. |
| Disadvantages to a Savings Account | Withdrawal fees, minimum balance needed to avoid fees, low interest rate, and opportunity cost, |
| Advantages to US Savings Bonds | Backed by the USA and a higher interest rate. |
| Disadvantages to US Savings Bonds | No liquidity, withdrawal fees or loss of interest if money is taken out early, not accessible, and inflation. |
| Advantages to a CD | Backed by a bank, higher interest rate, and insured. |
| Disadvantages to a CD | Minimum deposit required and no liquidity. |
| Advantages to Mutual Funds | Potential for large gains, diversified, and collections of stocks. |
| Disadvantages to Mutual Funds | Potential to lose all and commission paid. |
| Advantages to Stocks | Potential for big gains and high pay-out = high reward. |
| Disadvantages to Stocks | Big losses and it is risky. |
| Savings Account | An account at a bank where you earn interest on deposits. Compound vs. simple interest. Rule of 72. |
| US Savings Bond | A IOU to the Federal Government. Interest the Federal Government pays to investors for loaning it money (just like banks and credit unions do). |
| Certificate of Deposits (CD) | An insured, interest-bearing deposit at a bank, requiring the depositor to keep the money invested for a specific length of time (3 months - 5 years). |
| Mutual Funds | A collection of stocks-shares of stock for many different companies. |
| Stocks | Shares of a corporation. |
| Explain the role banks play in the saving process. Explain how saving is vital for the U.S. Economy. | Banks help protect money, they insure it. Saving is vital because it helps protect again inflation and too many loans taken out of banks causing them to collapse. |
| Compound Interest | Interest added to one's account. Interest paid both on savings and on the interest already earned. |
| Rule of 72 | It is how fast one's savings grow when one receives compound interest. Divide 72 by the interest and the quotient is the amount of time needed for the interest to double. |
| Liquidity | The readiness with which an item can be converted into cash without losing at least some of its value. A ability to be used as, or directly converted to cash. |
| Capital | A human-made resource that is used to create other goods and/or services. |
| Explain the correlation between liquidity, time invested, and interest rates when it comes to investing. | If one sacrifices liquidity and invest more time, one receives a higher rate of interest. |
| Explain how diversity is important when investing. | That way is one of one's investments is a poor choice with a poor outcome, then not all of one's money is gone. |
| What are the potential advantages of credit cards? | Fast money you can pay later, convenient, and helps build credit. |
| What are the potential disadvantages of credit cards? | Easy to overspend with them and sink into debt. |
| What techniques do banks use to try to get college students to open credit card accounts? | Free merchandise, incentives, and advertising. |
| List the reasons why many college students run up a lot of credit card debt. | They have no income and no money and they live beyond their means. |
| What are the effective management techniques involved with having a card? | Budgeting oneself and tracking everything that one spends one. |
| What are the advantages of a Roth IRA? | It is an Individual Retirement Account. It is an account providing tax-free income growth. Contributions are made with after-tax dollars.for a certain amount each year. |
| What are the 4 steps of Oprah's Debt Diet? | 1. Calculate your debt. 2. Track your spending. 3. Learn the credit card game. 4. Stop spending. |
| Shares | Portions of stock. |
| Equities | Claims of ownership in a corporation. |
| Capital Gain | The difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller. |
| Capital Loss | The difference between a lower selling price and a higher purchase price resulting in a financial loss to the seller. |
| Stock Split | The division of a single share of stock into more than one share. |
| Stockbroker | A person who links buyers and sellers of stock. |
| Brokerage Firm | A business that specializes in trading stocks. |
| Stock Exchange | A market for buying and selling stock. |
| Over-the-Counter (OTC) Market | An electronic marketplace for stocks and bonds. |
| Nasdaq | American market for OTC securities. |
| Futures | Contracts to buy or sell at a specific date in the future at a price specified today. |
| Options | Contracts that give investors that choice to buy or sell stock and other financial assets. |
| Call Options | The option to buy shares of stock at a specified time in the future. |
| Put Options | The option to sell shares of stock at a specified time in the future. |
| Bull Market | A steady rise in the stock market over a period of time. |
| Bear Market | A steady drop in the stock market over a period of time. |
| The Dow | Index that shows how certain stocks have traded. |
| S & P 500 | Index that shows how certain stock have traded. |
| Great Crash | The collapse of the stock market in 1929. |
| Speculation | The practice of making high-risk investments with borrowed money in hopes of getting a big return. |
| What are the advantages of a Custodial IRA? | Parents interested in helping their children get a head start on saving for their later years can open a custodial IRA. Though parents or guardians manage the account, children take control once they reach the age of majority. |
| Rank the following from most liquid to least liquid. | 1. Savings Account, 2. Certificates of Deposits, 3. Stocks. |
| Diversification | Spreading investments to reduce risk. |
| Portfolio | Collection of financial assets. |
| Return | The money an investor receives above and beyond the sum of money initially invested. |
| Credit Union | They are member-owned and are non-profit. They have interest rates. Basic things (cars, loans, etc...) have a lower interest rate. Savings and CDs have a higher interest rate. |
| Investment | The act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit. |
| Financial Asset | Claim on the property or income of a borrower. |
| Maturity | The time at which payment to a bondholder it due. |
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