Econ Pre/Post Test

Which of the following lists correctly identifies the three primary functions of money?

• Medium of exchange, store of value, and standard of value.

• Medium of exchange, unit of measure, and investment vehicle.

• Medium of exchange, liquidity provider, and saving instrument.

• Medium of exchange, store of wealth, and benchmark unit.

• Unit of account, exchange medium, and asset converter.

Why does fiat money have value even though it is not backed by a commodity?

• Because it is generally accepted as a means of payment and declared legal tender by the government.

• Because it is made of valuable materials.

• Because it maintains its value over time without inflation.

• Because it is universally scarce.

• Because it is based on historical usage.

The Rule of 72 is used to estimate which of the following?

• The time required to triple an investment.

• The duration of a certificate of deposit.

• The rate of return on government bonds.

• The time it takes for an investment to double in value.

• The percentage rate of compound interest.

Which of the following best describes the concept of fractional reserve banking?

• Banks invest all deposits in government bonds.

• Banks keep a fraction of deposits in reserve and lend out the rest.

• Banks lend out all the money deposited by customers.

• Banks maintain a reserve equal to 100% of deposits.

• Banks require customers to keep a fixed fraction of deposits as cash.

Which of the following components is included in the M1 money supply?

• Time deposits.

• Checkable deposits and currency.

• Savings deposits.

• Credit card balances.

• Money market mutual funds.

Which of the following is a primary benefit of participating in a 401(k) retirement plan?

• Employer matching contributions and tax-deferred growth.

• Guaranteed high returns regardless of market conditions.

• Immediate access to funds without penalties.

• FDIC insurance on all invested funds.

• Fixed interest rates similar to savings accounts.

What is the primary function of banks in the economy?

• To manage the nation’s money supply.

• To act as financial intermediaries that channel funds from savers to borrowers.

• To print money and set interest rates.

• To offer retail financial products without taking deposits.

• To insure deposits against bank failure.

What role does the FDIC play in the banking system?

• It insures bank deposits up to a specified limit to protect consumers in case of bank failure.

• It sets the Federal Reserve’s reserve requirements.

• It provides loans to failing banks.

• It regulates the stock market.

• It prints and issues currency.

Which type of mutual fund is most similar to a bank savings account in terms of safety?

• Money market mutual funds.

• Stock mutual funds.

• Bond mutual funds.

• International mutual funds.

• Index mutual funds.

How does compound interest differ from simple interest?

• Compound interest earns interest on both the initial principal and the accumulated interest.

• Compound interest is calculated only on the principal amount.

• Simple interest adds interest to the principal, which then earns more interest.

• Simple interest compounds daily.

• Compound interest results in a lower total return over time.