Unit 6: Personal Finance (Part 2) Test Review

How do interest rates generally affect consumer decisions regarding loans and credit cards?

• Higher interest rates encourage consumers to borrow more.

• Lower interest rates make borrowing more expensive.

• Higher interest rates discourage borrowing and increase saving.

• Interest rates have no impact on consumer decisions.

Which type of financial institution typically offers the lowest interest rates on loans?

• Pay-day loan facilities

• Title-pawn companies

• Banks

• Credit unions

What does the term "annual percentage rate" (APR) refer to?

• The monthly interest rate on a loan

• The yearly cost of borrowing expressed as a percentage

• The total amount of interest paid over the life of a loan

• The interest rate after taxes

How does a higher interest rate affect monthly payments on a fixed loan?

• It decreases the monthly payments.

• It has no effect on monthly payments.

• It increases the monthly payments.

• It only affects the final payment.

What is the main difference between simple and compound interest?

• Simple interest is calculated on the initial principal only, while compound interest is calculated on the principal and accumulated interest.

• Simple interest is always higher than compound interest.

• Compound interest is calculated only once a year.

• Simple interest includes fees and charges.

What is the difference between fixed and variable interest rates?

• Fixed rates change monthly, while variable rates remain constant.

• Fixed rates remain constant over the loan term, while variable rates can change.

• Variable rates are always lower than fixed rates.

• Fixed rates are only used for short-term loans.

How does inflation affect nominal and real returns on savings accounts?

• Inflation increases both nominal and real returns.

• Inflation decreases nominal returns but increases real returns.

• Inflation decreases real returns by reducing purchasing power.

• Inflation has no effect on either nominal or real returns.

Which type of tax is based on the value of property owned?

• Income tax

• Sales tax

• Property tax

• Capital gains tax

What is a progressive tax system?

• A tax system where everyone pays the same percentage of their income

• A tax system where higher income earners pay a higher percentage of their income

• A tax system where lower income earners pay a higher percentage of their income

• A tax system that only taxes capital gains

Which of the following is an example of a regressive tax?

• Income tax

• Estate tax

• Sales tax

• Capital gains tax