Fundamental Concepts of Economics Quiz

Fundamental Concepts of Economics

• Values: Emotional beliefs regarding preferences that affect decision-making.
• Goals: Specific objectives a person aims to achieve.
• Needs vs. Wants: Needs are essentials for survival; wants enhance comfort and pleasure.
• Scarcity: The gap between limited resources and unlimited desires, leading to the necessity for choices.

Market Dynamics

• Surplus: Occurs when supply exceeds demand.
• Equilibrium Price: The price where the quantity supplied equals the quantity demanded.
• Demand and Supply: Demand is influenced by consumer willingness to buy, while supply refers to the availability of goods.

Economic Structures

• Traditional Economy: Based on customs; roles and production methods are passed down generations.
• Command Economy: Centralized government controls production, focusing heavily on industrial goods.
• Market Economy: Resource allocation through decentralized decisions by households and businesses.
• Mixed Economy: Combines private enterprise with government regulation and support.

Financial Planning and Budgeting

• Budget: A financial plan outlining expected income and expenditures.
• Fixed Expenses: Costs that remain constant regardless of the volume of activity.
• Flexible Expenses: Variable costs like utilities and food that can change over time.

Money Management

• Gross Pay vs. Net Pay: Gross is total income before deductions; net is income after deductions.
• Deductions: Amounts taken from gross pay, reducing take-home income.
• Saving: Disposable income directed towards future needs rather than immediate consumption.

Currency and Banking

• Federal Reserve: Central banking system responsible for monetary policy and interest rates.
• Reserve Requirement: A percentage of deposits that banks must keep in reserve.
• Credit Union: Member-owned financial institution offering savings, loans, and services at lower costs.

Investment Basics

• Investing: Allocating resources hoping to yield returns over time.
• Risk: The uncertainty associated with investment returns.
• Return: The income earned on invested capital.

Types of Financial Instruments

• Bonds: Securities representing a promise to repay borrowed funds with interest.
• Stocks: Shares representing ownership in a corporation; can be common or preferred.
• Mutual Funds: Investments pooled from many investors to buy a mixed portfolio of stocks and bonds.

Understanding Credit

• Credit: Agreement to receive goods/services upfront with promises of future payment.
• Credit History: Record of repayments which influences credit ratings and borrowability.
• Secured vs. Unsecured Loans: Secured loans require collateral; unsecured loans are based solely on promise of repayment.

Retirement Planning

• Retirement Plans: Strategies to set funds aside for post-retirement living.
• 401(k) vs. 403(b): Employer-sponsored retirement plans, with tax advantages for contributors.
• Roth IRA vs. Traditional IRA: Retirement accounts with different tax implications and withdrawal rules.

Final Exam Preparation

• Exam Structure: Familiarize with key terms and concepts across chapters for comprehensive understanding.
• Practice Concepts: Apply definitions and their implications to real-life scenarios.
• Revise Key Terms: Regular review of financial terminology to reinforce knowledge retention.