WPT Economics and Finance 2 — Questions and Answers
Question 1: What is the stock market?
- A government auction for Treasury bonds and securities
- A marketplace where shares of publicly traded companies are bought and sold (Correct answer)
- A system for managing employee pension funds
- A bank-operated exchange for foreign currencies
Correct answer: A marketplace where shares of publicly traded companies are bought and sold
The stock market is a collection of exchanges and markets where investors buy and sell shares of publicly listed companies, with major U.S. exchanges including the NYSE and NASDAQ.
Question 2: What does it mean to 'diversify' an investment portfolio?
- To invest all savings in the single highest-performing asset
- To spread investments across different asset types and sectors to reduce risk (Correct answer)
- To move investments offshore to reduce tax liability
- To reinvest dividends automatically back into the same stock
Correct answer: To spread investments across different asset types and sectors to reduce risk
Diversification means allocating investments among different asset classes (stocks, bonds, real estate) and sectors so that a loss in one area is offset by gains in another.
Question 3: What is a mortgage?
- A personal loan used to purchase a vehicle
- A loan used to purchase real estate, with the property serving as collateral (Correct answer)
- A government grant for first-time homebuyers
- A type of savings account offered by banks for home purchases
Correct answer: A loan used to purchase real estate, with the property serving as collateral
A mortgage is a long-term loan secured by real estate, in which the borrower makes regular payments of principal and interest until the debt is repaid or the home is sold.
Question 4: What is the purpose of the Federal Deposit Insurance Corporation (FDIC)?
- To regulate interest rates charged by commercial banks
- To insure depositors' funds at member banks up to $250,000 per account in case the bank fails (Correct answer)
- To oversee the stock market and prevent insider trading
- To lend money directly to consumers during financial emergencies
Correct answer: To insure depositors' funds at member banks up to $250,000 per account in case the bank fails
The FDIC, created in 1933 after widespread bank failures during the Great Depression, insures bank deposits up to $250,000, protecting customers if their bank becomes insolvent.
Question 5: What is the difference between a debit card and a credit card?
- A debit card builds credit history while a credit card does not
- A debit card draws funds directly from a bank account while a credit card borrows money from a lender to be repaid later (Correct answer)
- A debit card can only be used domestically while a credit card can be used internationally
- A credit card is issued by banks while a debit card is issued by the government
Correct answer: A debit card draws funds directly from a bank account while a credit card borrows money from a lender to be repaid later
A debit card immediately deducts money from your checking account, while a credit card charges purchases to a line of credit that must be repaid, often with interest if not paid in full monthly.
Question 6: What is supply and demand?
- A government policy that sets fixed prices for essential goods
- An economic model describing how the price and quantity of goods are determined by producer supply and consumer demand (Correct answer)
- A shipping and logistics framework used by retailers
- A formula used by accountants to calculate business profitability
Correct answer: An economic model describing how the price and quantity of goods are determined by producer supply and consumer demand
Supply and demand is a foundational economic model explaining that prices rise when demand exceeds supply and fall when supply exceeds demand, reaching equilibrium at a market price.
WPT Economics and Finance 2
What is the stock market?