Economics Flashcards

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Questions and Answers

What do many investors invest in by purchasing securities?

debt

What are consumers and businesses able to purchase when they buy bonds?

debt

What can investors also purchase when investing?

debts

In which markets do investors sell shares of their company in countries and cities around the world?

stock markets Signup and view all the answers

Which best describes the role that government and business play in investments?

They both receive capital to use for growth Signup and view all the answers

Which best describes what generally occurs in financial markets?

assets are traded Signup and view all the answers

What best describes what a market index does?

An index measures market performance Signup and view all the answers

Are the buying and selling of stocks centralized activities?

False Signup and view all the answers

Since stocks can be traded online, what purpose is best served by markets?

Markets are where the trades actually occur. Signup and view all the answers

Which statement best describes how an investor makes money off debt?

An investor makes money by earning interest. Signup and view all the answers

What can be traded in a commodities market?

oil Signup and view all the answers

Which best describes an investor's primary goal?

to earn a profit Signup and view all the answers

Which factors can affect a stock's price? Check all that apply.

The economy Signup and view all the answers

What does selling something for a higher price mean?

Making a profit out of something when it wasn't one before. Signup and view all the answers

What is a certificate of deposit (CD)?

A type of savings account maintained by banks with higher interest rates. Signup and view all the answers

What does the return on investment measure?

The percentage of the total cost of purchasing an investment and the profit made from selling that investment. Signup and view all the answers

Which rule is important to remember when evaluating risk?

Investments believed to be unpredictable are more risky. Signup and view all the answers

Monetary policy is directly implemented by whom?

The Federal Reserve Signup and view all the answers

During a period of economic growth, investors are ____ likely to take risks and invest funds.

more Signup and view all the answers

Fiscal policy seeks to affect the economy and interest rates by directly modifying?

taxation and spending Signup and view all the answers

What should an investor consider when making an investment? Check all that apply.

Any taxes that will need to be paid at the state and federal levels Signup and view all the answers

What is most likely to happen as a result of the change in interest rates?

The market will experience more demand and the price of houses will go up. Signup and view all the answers

Interest rates generally reflect?

The level of risk in an investment. Signup and view all the answers

Taxes are often owed on?

investment returns. Signup and view all the answers

Compared to high-risk investments, are low- and medium-risk investments in higher demand because they are considered safer?

True Signup and view all the answers

Changes in monetary policy have the greatest effect on?

demand for investments. Signup and view all the answers

Which statement best describes how inflation affects the value of investments over time?

It decreases the value of money. Signup and view all the answers

Which statement is true of the relationship between risk and return?

The greater the risk, the greater the potential return. Signup and view all the answers

_____ policy involves government changes to spending or taxation to affect the economy.

Fiscal Signup and view all the answers

The nominal interest rate could best be described as the ____ rate.

stated Signup and view all the answers

What are some characteristics of short-term investments? Check all that apply.

They usually last for less than a year. Signup and view all the answers

What do commodities investors do?

Invest their funds in goods such as grains, livestock, and raw materials. Signup and view all the answers

What are mutual funds?

An investment that holds a wide range of different investment instruments. Signup and view all the answers

What should investors consider when planning for their retirement? Check all that apply.

The amount an investor is allowed to contribute annually Signup and view all the answers

What does liquidity refer to?

The ability to easily convert financial assets into cash without loss in value. Signup and view all the answers

An investment will grow faster with a monthly ______ interest rate.

compound Signup and view all the answers

What is Diversification?

The practice of spreading one's wealth over a variety of different financial investments to reduce overall risk. Signup and view all the answers

What is the purpose of making an estate plan?

To protect property for distribution after death. Signup and view all the answers

What are the main rules of writing a will? Check all that apply.

An executor must be named to oversee the distribution of the estate. Signup and view all the answers

What are the responsibilities of an executor? Check all that apply.

Appraising and distributing the deceased person's assets Signup and view all the answers

What are the benefits of naming a secondary beneficiary in a will? Check all that apply.

It allows for another option if the primary beneficiary cannot inherit. Signup and view all the answers

What is a balanced budget?

A budget in which revenues are equal to spending. Signup and view all the answers

What are discretionary income?

Expenses that are optional. Signup and view all the answers

What does it mean to invest?

To use money in a way that will increase its value in the future. Signup and view all the answers

What are withholdings?

Taxes collected and remitted to the government by an employer from an employee's wages. Signup and view all the answers

Which two factors have the greatest influence on risk for an investment?

The duration of the investment Signup and view all the answers

What is one advantage to buying a CD?

It can be purchased for different amounts. Signup and view all the answers

When the economy grows, what is most likely to happen?

More investors are willing to take risks. Signup and view all the answers

Which of these qualify as variable expenses? Check all that apply.

Clothing purchases Signup and view all the answers

A budget should be based on a person's ___ income.

net Signup and view all the answers

Interest on an investment is considered?

profit Signup and view all the answers

The level of investment in markets often indicates?

the state of the economy. Signup and view all the answers

____ are debt certificates that are purchased by an investor.

Bonds Signup and view all the answers

Study Notes

Securities

Refers to financial instruments that represent an ownership position or a creditor relationship with an entity.
Commonly include stocks and bonds, which investors purchase for varying reasons, primarily return on investment.

Bonds

A type of debt security that allows consumers and businesses to borrow funds from investors with a promise to pay back with interest.
Serve as a way for entities to raise capital for business expansion or projects.

Debts

Include financial obligations that can be bought by investors, often in the form of loan agreements or bonds.
Investors earn interest as a return for lending money through these arrangements.

Stock Markets

Platforms where investors buy and sell shares of publicly traded companies globally.
Operate independently across different countries and cities, facilitating the trading of ownership stakes in firms.

Role in Investments

Government and businesses seek capital through investments to promote growth and development.
Investments provide essential funding for infrastructural and economic initiatives.

Financial Markets

Refers to venues where assets are bought and sold, enabling the transfer of capital from savers to borrowers.
Includes stock markets, bond markets, and commodities markets, among others.

Market Index

An indicator that measures the performance of a specific group of stocks, signifying overall market trends.
Provides investors with benchmarks for assessing the market's health.

Decentralized Trading

Stock trading is not centralized; various global markets operate independently, allowing for diverse investment opportunities.
Investors can engage in trading wherever markets are open, reflecting a global economic landscape.

Purpose of Markets

Markets serve as places where trades occur, even though transactions may also happen online.
They facilitate liquidity and transparency within the investment environment.

Earning from Debt

Investors profit by earning interest on the funds they lend to entities through various debt instruments.
This income is a reward for the risk taken in the lending process.

Commodities Market

A market where physical goods such as oil, grains, and livestock are traded.
Essential for investors focusing on tangible assets and their price fluctuations.

Primary Goal of Investors

The main aim for investors is to earn a profit through strategic investments.
This goal drives decision-making in asset selection and market engagement.

Factors Affecting Stock Prices

Stock prices are influenced by market performance, company financial health, and broader economic conditions.
Investors continuously analyze these factors to make informed buying or selling decisions.

Investment Characteristics

Short-term investments, like Certificates of Deposit (CDs), usually last less than a year and are considered low risk.
They can provide stable returns with fewer fluctuations in value.

Risk Evaluation

Generally, investments perceived as unpredictable carry higher risks and potential returns.
Investors should weigh potential losses against the possibility of gains when evaluating opportunities.

Monetary Policy

Implemented by the Federal Reserve to regulate the money supply and influence economic conditions.
Monitors interest rates, aiming to promote economic stability and growth.

Economic Growth Impact

During economic expansions, investors tend to be more willing to take risks with their investments.
Increased investor confidence typically correlates with rising market activity.

Fiscal Policy

Encompasses government strategies related to taxation and spending aimed at managing the economy.
Alters interest rates and influences investment behaviors through financial incentives or constraints.

Considerations for Investors

Critical elements for an investment decision include historical performance, existing taxes, inflation rates, and general risk levels.
Investors should conduct thorough analysis before committing capital.

Housing Market Trends

Changes in interest rates directly affect housing demand and pricing, often resulting in increased values during favorable economic periods.
The ripple effect of monetary policy can significantly change market dynamics.

Executor Responsibilities

An executor must manage estate matters, including settling debts, appraising assets, and distributing property to heirs.
Key for ensuring that the deceased's wishes are fulfilled legally.

Importance of Liquidity

Liquidity measures the ease of converting assets into cash without loss in value, vital for maintaining financial flexibility.

Diversification Strategy

Spreading investments across various asset classes reduces overall risk.
Helps mitigate losses in one area through gains in another.

Estate Planning Purpose

Aids in the careful distribution of assets after death, avoiding legal disputes and ensuring beneficiaries are cared for.
Important for legacy planning and tax management.

Balanced Budgets

A balanced budget occurs when revenues equal expenditures, essential for fiscal responsibility.

Variable Expenses

Expenses that fluctuate from month to month including clothing, groceries, and discretionary spending.
Impacts budgeting strategies and financial planning.

Profit from Interest

Interest from investments is considered profit and contributes to overall investment returns.
Subject to taxation and treatment under financial regulations.

Economic Indicators

Levels of investment activity often reflect the state of the economy, signaling confidence or concern in market conditions.
Used by economists and policymakers to assess economic health and make informed decisions.

CDs Advantages

Certificates of Deposit can be purchased at varying amounts, allowing for tailored investment strategies based on individual financial needs.
Generally viewed as secure compared to other investment vehicles.

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Description

Test your knowledge on essential economics terms with these flashcards. Each card features a key word related to finance and investing, along with its definition. Perfect for students and anyone interested in learning about securities, bonds, and stock markets.