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Unit 5 Test Review
| Term | Definition |
|---|---|
| Barter system: | Goods and services are traded for other goods and services. |
| Medium of Exchange: (function) | We use money to buy and sell goods and services. |
| Store of Value: (function) | Money maintains value over time allowing us to save it. |
| Standard of Value: (function) | We can use money to measure and compare the value of goods and services. |
| Acceptable: (Characteristics) | A form of payment accepted by all. |
| Divisible: (Characteristics) | Able to be divided into smaller parts to make change |
| Durable: (Characteristics) | Long-Lasting |
| Portable: (Characteristics) | Easy to carry and convenient |
| Scarce: (Characteristics) | Scarce enough to be valued |
| Uniform: (Characteristics) | All bills/coins look the same |
| Fiat money: | Paper Money today that’s not backed by gold. Only valuable because we have faith in it. (ex. U.S Dollar) |
| Commodity money: | A good used as money b/c it is valuable to trade (ex. Gold, Silver, Salt) |
| M1 | currency, traveler’s checks, and checkable deposits ($ in checking accounts) |
| M2 | All of M1 + savings accounts, less liquid deposits |
| Financial Institution: | An establishment that completes and facilitates monetary transactions, such as loans, mortgages, and deposits. |
| financial intermediary | An institution or individual that serves as a middleman among diverse parties in order to facilitate financial transactions. (ex. Commercial banks) |
| Who are the sellers and buyers that banks bring together? | Individual and institutional investors |
| Checking Account (checkable deposit) | A type of bank account that allows you to easily deposit and withdraw money for daily transactions. |
| Savings Account (savings deposits) | A deposit account that earns interest designed to hold money you don't plan to spend immediately. |
| Time Deposits (CDs) | A deposit in a bank account that cannot be withdrawn before a set date or for which notice of withdrawal is required. |
| When was the Federal Reserve created and what does it do? | 1913; To regulate the economy and the money in circulation. |
| When was the FDIC created? Why? and what does it do? | 1933; Created in hopes to restore the public confidence in banks. Maintains stability in the financial system. |
| How do banks make money? | On the interest you pay. |
| Income (part of a budget) | money earned from working or investments. |
| Spending (part of a budget) | Money you don’t save. |
| Savings (part of a budget) | Money you don’t spend. |
| What is investing? | Using the money you have saved to earn even more money. |
| Explain the power of compound interest? | Calculated on the principal amount and the accumulated interest of previous periods. |
| Bond: | A loan with a fixed rate of interest. (low risk; low return rates) |
| Stock: | an ownership share in a business. (riskier; higher rate of return) |
| What are the 3 main sources of retirement income? | Company Retirement Plans (401k) Personal Savings Social Security |
| An investment that is high risk, | will most likely be high return. |
| An investment that is low risk, | will most likely be low return. |
| Brokerage Account: | Account used to invest in mutual funds or other investments. - Taxable - No restrictions on when or how you can withdraw |
| Retirement Account: | Account used to invest in mutual funds or other investments - Tax advantages designed to save for retirement. - Restrictions on when and for what you can withdraw your money. |
| Mutual Fund: | A collection of securities chosen and managed by a group of professional fund managers. Shares in a mutual fund can be bought and sold. - Offers diversification - Investors will pay a management fee (1%-2%). |
| Index Fund: | can be bought/sold like shares of an individual stock. The fund closely tracks the stock prices of 500 large firms traded on the stock exchange. - Not actively managed; very low fees (.02%-0.1%) - Diversification |
| Traditional IRA | you pay your taxes after you retire. |
| Roth IRA | you pay your taxes while you are still working and when you retire, you don't have to pay your taxes. |
| What is credit? | The ability of the consumer to acquire goods or services prior to payment with the faith that the payment will be made in the future. |
| APR | The number that represents the total yearly cost of borrowing money, expressed as a percentage of the principal loan amount. |
| What’s a mortgage? | Secured loans where the borrower promises collateral (your house) to the lender in the event that they stop making payments. |
| Principal: | The money that you originally agreed to pay back. |
| Interest: | The cost of borrowing money. |
| subsidized loans | The federal government pays the interest while you study |
| unsubsidized loan | interest remains the responsibility of the borrower |
| risk pooling. | A group of individuals whose medical costs are combined to calculate premiums. |
| Policy: | A contract of insurance |
| Premium: | the payment for an insurance policy |
| Claim: | formal request made for payment covered by the insurance policy |
| Loss: | death, injury, or damage that is the basis for a claim |
| Deductible: | the amount you must pay before the insurance company will pay |
| Coverage: | the risks covered and amount of money paid for the loss |
| Homeowners insurance | covers damage or loss by theft and against perils which can include fire, and storm damage. |
| Renter's insurance | only covers the belongings in a residence. |
| Collision: | Pays to repair or replace your car after an accident. |
| Liability: | pays to repair the other driver's car if you caused the accident. **Must have legally** |
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