Economics and Personal Finance Flashcards

What is the 'law of supply' in economics?

Answer: As price increases, quantity supplied increases

The law of supply states that producers will offer more of a good at higher prices, all else being equal.

Which type of account typically offers the highest interest rate but requires keeping money deposited for a fixed term?

Answer: Certificate of Deposit (CD)

A Certificate of Deposit locks in funds for a set period in exchange for a guaranteed, often higher, interest rate.

What is 'diversification' in personal investing?

Answer: Spreading investments across different asset types to reduce risk

Diversification reduces risk by distributing investments across various assets, so poor performance in one area is offset by others.

What does GDP stand for and what does it measure?

Answer: Gross Domestic Product; total value of goods and services produced in a country

GDP (Gross Domestic Product) measures the total monetary value of all goods and services produced within a country in a given period.

Which of the following is considered a 'liquid' asset?

Answer: Cash in a checking account

Cash in a checking account is immediately accessible and can be used for transactions without conversion, making it highly liquid.

What is compound interest?

Answer: Interest earned on both the principal and previously earned interest

Compound interest accumulates on both the initial principal and the interest already earned, causing growth to accelerate over time.