Final ECON Practice

Michael began saving for his daughter Tamara’s college education the year she was born. Initially he invested most of his money in mutual funds. Now that Tamara is fifteen and college is two years away, he has moved most of his money to certificates of deposit. Which reason BEST explains why he rebalanced his investment portfolio?

• to increase potential rates of return

• to reduce risk

A first step to beginning a savings program would most likely be to —

• set financial goals

• set business goals

What is the benefit to buying a home instead of renting one?

• Home owners have less maintenance costs

• home owners accumulate value in their homes

One advantage of using a debt card is that it allows the user to

• build a strong credit score

• access to currency without using cash

How does the Federal Reserve System act to reduce inflation?

• increase interest rates

• increase business taxes

Which characteristic describes fiat money?

• backed by a precious metal

• backed by the issuing government

How would the flows in this diagram MOST likely be affected by higher personal income tax rates?

• Line two would increase

• Line 3 would decrease

Which of the following is a characteristic of a market economy?

• The government allocates resources and ensures efficient production.

• The Clint District allocates resources and ensures efficient production.

What was one purpose of the North American Free Trade Agreement (NAFTA)?

• the reduction of tariffs on goods traded between adjoining countries

• the creation of a single currency for a number of countries

Which action should a country take to gain a comparative advantage?

• focus on goods that can be most efficiently produced in order to increase trade

• begin trading with countries that have lower opportunity costs