AnswersCA-EconomicsUnit Test

Unit Test — Unit test Answers

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1
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Changes in monetary policy occur when the Federal Reserve

A
adjusts business laws to affect the money supply.
B
changes taxation levels to affect the economy.
C
changes spending levels to affect the economy.
D
adjusts interest rates to affect the money supply.
2
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Which is an example of a short-term investment?

A
bonds
B
retirement funds
C
savings accounts
D
houses
3

How does time generally affect the risk of an investment?

A
Short-term investments are generally less risky than long-term investments.
B
Long-term investments are generally more risky than short-term investments.
C
Time has no effect on the risk of an investment.
D
Short-term investments are generally more risky than long-term investments.
4

Julie wants to buy a car and is deciding how she should invest her money. To best meet her needs, she should

A
keep her money in a checking account for easy access.
B
invest in US savings bonds because of its short term.
C
invest in a commodity because of its low risk.
D
keep her money in a savings account for easy access.
5

Which questions should Robert ask himself before investing the $10,000 he inherited? Select four options.

A
How am I protected as an investor?
B
Are my friends investing in a similar way?
C
What guarantees are in place so I make money?
D
What taxes will I have to pay on this investment?
E
How do the risks compare to the potential gains?
F
What are the chances that the investment will fail?
6

Which of these affect real investment value? Check all that apply.

A
fees and expenses
B
inflation
C
nominal interest rate
D
pretax returns
E
taxes
7

When discussing a loan, interest rates are expressed as a percentage of the

A
investment fees.
B
the principal.
C
the profit.
D
taxes owed.
8

Putting money into more than one kind of investment at a time is called

A
liquidity.
B
sunken cost.
C
diversification.
D
compound interest.
9

The graph shows the effect of inflation.Approximately how much of the initial investment’s value would be lost after 15 years at 3% inflation?

Question illustration
A
15%
B
20%
C
40%
D
50%
10

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

A
It erases the value of investments.
B
It increases the value of money.
C
It decreases the value of money.
D
It controls the value of investments.
11

[BLANK]

A
principal borrowed
B
outstanding balance
C
projected balance
12

From what part of income should someone take savings?

A
what otherwise would be fixed expenses
B
gross income, before other deductions
C
what otherwise would be discretionary income
D
gross income, along with other deductions
13

Which are common mistakes people make when investing? Choose four answers.

A
They put all of their money into one kind of investment at a time.
B
They divide their funds between more risky and less risky options.
C
They analyze their comfort level with the types of risk they will take.
D
They invest more money than they can afford.
E
They focus heavily on familiar investment opportunities.
F
They hold onto investments longer than they should to recoup losses.
14

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

A
The greater the risk, the greater the potential return.
B
The relationship between risk and return is always the same.
C
The greater the risk, the lower the potential return.
D
The relationship depends on the individual investment.
15

The chart shows a sample paycheck stub.

Question illustration
A
added to employee pay.
B
withheld from employee pay.
C
refunded in employee pay.
D
filed through employee pay.
16

Changes in monetary policy have the greatest effect on

A
income tax rates.
B
service fees and expenses.
C
demand for investments.
D
government spending.
17

If the Federal Reserve decreased the money supply, what would the effects be? Check all that apply.

A
decreased interest rates
B
increased interest rates
C
decreased borrowing
D
increased borrowing
E
decreased investing
F
increased investing
18

The chart shows taxable income.

Question illustration
A
Income is what a person earns, while taxable income reflects deductions subtracted for relevant expenses.
B
Income is what a person earns, while taxable income reflects what is left after paying federal taxes.
C
Income is what a person earns, while taxable income reflects what is left after paying local and state taxes.
D
Income is what a person earns, while taxable income reflects what is received from the IRS in a tax refund.
19

Read the scenario.Sarah has always been passionate about environmental protection. She decides to volunteer her time and donate to a local organization dedicated to cleaning up parks and promoting recycling in her community. She feels a sense of fulfillment knowing that her efforts are contributing to a cleaner and healthier environment for future generations.What is the primary motivation behind Sarah's volunteer work and donations?

A
to spend more time outdoors in local parks
B
to gain recognition and status in her community
C
to earn tax credits for her charitable contributions
D
to fulfill a personal sense of environmental responsibility
20

Mindy wants to save money to buy a new couch.Which would be the best strategy for her to accomplish her goal?

A
adopt a dog from a shelter
B
stop paying her credit card bill
C
decrease the budget for basic food needs
D
forgo watching movies online or in the theater

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