Saving and Capital Formation

Ellie learns she is pregnant.

Saving will

• Invest in stocks immediately.
• Start saving for future expenses.
• Stop saving altogether.
• Spend all savings on luxury items.

Vince reads in the paper about possible layoffs in his industry.

Saving will

• Increase savings
• Take a vacation
• Invest in stocks
• Reduce expenses

Vince had hoped that his parents would lend financial assistance toward the couple’s planned purchase of a house, but he learns that they can’t afford it.

Saving will

• Vince has enough savings to buy the house without help.
• Saving will be necessary for Vince to purchase the house.
• Vince's parents will fully fund the house purchase.
• Vince can rely on a loan from his parents.

Ellie announces that she would like to go to law school in the next few years.

Saving will

• Start saving money for law school.
• Take a gap year before college.
• Apply for a scholarship instead.
• Enroll in a community college program.

A boom in the stock market greatly increases the value of the couple’s retirement funds.

Saving will

• fluctuate
• remain the same
• decrease
• increase

Vince and Ellie agree that they would like to leave a substantial amount to local charities in their wills.

Saving will

• Vince and Ellie should specify a substantial amount in their wills for local charities.
• Vince and Ellie should only donate a small amount to local charities.
• They should not include any charities in their wills.
• Vince and Ellie should leave their entire estate to a single charity.

Ellie and Vince would be willing to pay $1,500 monthly rent to live in a house of the same quality as the one they are thinking about purchasing. Should they buy the house?

They should _______ the house.

• ignore
• sell
• buy
• rent

Home-building companies dislike high interest rates because they

• they receive more government subsidies for construction.
• they face reduced demand for new homes due to increased borrowing costs.
• they benefit from increased sales of luxury homes.
• they can lower their prices to attract more buyers.

Identify the most likely purpose of each the following types of savings accounts:

 

1. A college fund account:

• To save for vacation expenses.
• Life Cycle Saving

• To accumulate funds for a new car.
• To set aside money for home repairs.

An account established in the name of a grandchild: 

• Investment account
• Savings account
• Trust fund
• Bequest Saving account