General General Economics and Financial Literacy 2 — Questions and Answers
Question 1: What is a 'stock' in financial terms?
- A government bond
- A share of ownership in a company (Correct answer)
- A type of savings account
- A loan given to a business
Correct answer: A share of ownership in a company
A stock represents a share of ownership in a corporation, entitling the holder to a portion of the company's profits and assets.
Question 2: What is 'credit score' used for in the United States?
- To measure a person's academic performance
- To evaluate an individual's creditworthiness and likelihood of repaying debt (Correct answer)
- To track a person's tax payments
- To determine a person's net worth
Correct answer: To evaluate an individual's creditworthiness and likelihood of repaying debt
A credit score is a numerical rating that lenders use to assess how likely a borrower is to repay loans based on their credit history.
Question 3: What is 'diversification' in investing?
- Putting all your money into one high-performing stock
- Spreading investments across different assets to reduce risk (Correct answer)
- Withdrawing all funds during a market downturn
- Investing only in government bonds
Correct answer: Spreading investments across different assets to reduce risk
Diversification means spreading investments across various asset classes so that a loss in one does not devastate the entire portfolio.
Question 4: What does 'recession' mean in economics?
- A period of rapid economic growth
- A significant decline in economic activity lasting more than a few months (Correct answer)
- A government tax cut
- An increase in consumer spending
Correct answer: A significant decline in economic activity lasting more than a few months
A recession is typically defined as two consecutive quarters of negative GDP growth, accompanied by rising unemployment and reduced spending.
Question 5: What is an 'interest rate' in the context of borrowing?
- The total amount borrowed
- The percentage charged by a lender for the use of borrowed money (Correct answer)
- The monthly payment amount on a loan
- The penalty for paying a loan off early
Correct answer: The percentage charged by a lender for the use of borrowed money
An interest rate is the proportion of a loan amount charged as interest by the lender, typically expressed as an annual percentage.
Question 6: What is the difference between a 'debit card' and a 'credit card'?
- A debit card charges interest; a credit card does not
- A debit card draws directly from your bank account; a credit card borrows money from a lender (Correct answer)
- A debit card can only be used online; a credit card can be used anywhere
- There is no practical difference between the two
Correct answer: A debit card draws directly from your bank account; a credit card borrows money from a lender
A debit card immediately deducts funds from your checking account, while a credit card extends a line of credit that you repay later.
General General Economics and Financial Literacy 2
What is a 'stock' in financial terms?