Economics Unit 2 Review

Elijah is applying for an auto loan. The lender considers Elijah creditworthy MOST LIKELY because Elijah...

• has a new job.

• has a home mortgage loan.

• has many credit cards already.

• has made on-time payments to other loans.

Ricky receives a credit card offer in the mail. The offer contains a low introductory rate. Although all of these are important factors, which of these should he investigate FIRST before accepting the offer?

• availability of special programs, such as frequent flier miles

• the type of card, such as secured, regular, or premium

• the APR after the introductory period expires

• the cash advance and ATM features

You have decided to save money to buy a car. You would like to buy a car in the next 6 months. All of the following options allow you to save money. Which option is NOT a good choice for your short-term needs?

• Checking Account

• Money Market Account

• Savings Account

• Individual Retirement Account

Patrick would like to increase his earnings. The option MOST LIKELY to increase his earnings potential in the long-term is to

• spend money for additional training and education

• spend money to renew current training

• take a similar position with a different company

• laterally transfer to a different job within the same company

Which of these is the BEST explanation for why banks loan money to individuals?

• The bank would like to borrow money from the Federal Reserve System.

• The bank would like to take a risk and support an entrepreneur.

• The government requires that banks give money to applicants.

• The bank would like to earn a profit by charging interest.

Maria deposits, or invests, her paycheck in a savings account. The bank can then offer some of the money to a borrower in the form of a loan. How can Mariah benefit financially from this relationship?

• Mariah can decide to take her money out of the savings account before the loan is made to save money.

• Mariah can choose to invest her money in another bank that doesn't make loans to borrowers.

• Mariah can feel good that she supported a borrower.

• Mariah can earn interest on her original deposit.

Which situation explains how a credit becomes a debt?

• A buyer purchases furniture on credit, and then owes a debt to the furniture store.

• An electronics store extends credit to a buyer, and then owes a debt to the plumber.

• A mechanic exchanges services with a plumber, and incurs a debt to the plumber.

• A farmer purchases used equipment in exchange for a share of the crops grown.

Why are credit unions typically able to offer higher interest rates to savers and lower interest rates to borrowers than commercial banks?

• Credit unions are required by law to pay different rates than commercial banks.

• Credit unions charge very high membership fees to make up for the other losses.

• Credit unions are not-for-profit.

• Credit unions are federally funded to insure they pay more and charge less.

Checking Account

Savings Account

Loan to customers

All of these are functions of what institution?

• Businesses

• Coorporations

• Schools

• Banks

Why might some individuals choose IRAs (Individual Retirement Accounts) over investing in stocks when saving for retirement?

• IRAs have a lower rate of return compared to stocks.

• Stocks guarantee a lower rate of return compared to IRAs.

• Stocks are less risky than IRAs.

• IRAs have the potential to reduce the tax burden.