EPF Unit 2 Test Review

Which of the following best explains why workers with the same degree may earn different salaries?

• All employers follow a national pay scale.

• Differences in location, industry demand, and job performance.

• Employers must base pay on gender.

• Salaries are set by state law.

Answer explanation

Workers with the same degree may earn different salaries due to factors like location, industry demand, and individual job performance, which can significantly influence compensation.

Which of the following illustrates the signaling argument about higher education and income?

• A. A diploma tells employers the applicant has valuable qualities.

• B. Education directly increases productivity.

• C. Students in college learn time management skills.

• D. Taxes are higher on college graduates.

Answer explanation

Choice A illustrates the signaling argument as it suggests that a diploma serves as a signal to employers about the applicant's valuable qualities, rather than directly increasing productivity or skills.

Which of the following would most likely be considered a labor market imperfection?

• A worker’s promotion based on strong performance.

• An applicant refuses to relocate for a higher-paying job.

• A company raises wages to attract more employees.

• A worker learns new skills to increase income.

Answer explanation

An applicant refusing to relocate for a higher-paying job reflects a labor market imperfection, as it indicates barriers to mobility that prevent optimal job matching and wage adjustments.

A regressive tax is considered less fair than a progressive tax because:

• It only applies to high-income earners.

• It charges a higher percentage of income for low earners.

• It encourages workers to earn more.

• It only applies to property taxes.

Answer explanation

A regressive tax is less fair because it takes a larger percentage of income from low earners, making it disproportionately burdensome on them compared to high-income earners, who pay a lower percentage.

If property values rise in a community, which group is most negatively affected?

• A family selling their home.

• A renter who pays fixed monthly rent.

• A homeowner on a fixed income who plans to stay in their house.

• A real estate agent earning commission on sales.

Answer explanation

A homeowner on a fixed income is negatively affected by rising property values because their property taxes and living costs may increase, while their income remains the same, making it harder to afford necessary expenses.

Which of the following income types is most vulnerable to market fluctuations?

• Salary

• Dividends

• Hourly wages

• Property tax rebates

Answer explanation

Dividends are payments made to shareholders from a company's profits, making them highly susceptible to market fluctuations. Unlike salary, hourly wages, or property tax rebates, dividends can vary significantly based on market performance.

A worker paid a set amount every two weeks regardless of hours worked is earning a:

• Wage

• Salary

Answer explanation

A worker earning a set amount every two weeks, regardless of hours worked, is receiving a salary. This payment structure is typical for salaried positions, distinguishing it from hourly wages.

A major difference between progressive and proportional taxes is that proportional taxes:

• Charge everyone the same percentage of income.

• Increase as income increases.

• Affect high earners the most.

• Only apply to investment income.

Answer explanation

Proportional taxes charge everyone the same percentage of income, regardless of earnings. This contrasts with progressive taxes, which increase rates as income rises.

Which advantage is most unique to credit unions compared to commercial banks?

• More ATMs and branches.

• Lower fees and higher savings rates.

• More mobile technology.

• FDIC protection.

Answer explanation

Credit unions typically offer lower fees and higher savings rates than commercial banks, as they are member-owned and focus on serving their members rather than maximizing profits.

Which type of account is least liquid?

• Checking account

• Money market account

• Certificate of Deposit (CD)

• Cash

Answer explanation

A Certificate of Deposit (CD) is least liquid because it requires funds to be locked in for a fixed term, incurring penalties for early withdrawal, unlike checking and money market accounts which allow easier access to funds.