Economics Chapter 4 Study Guide Multiple Choice Identify the by gabyion

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									Economics Chapter 4 Study Guide

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____    1.

                   The graph shows information about a particular installment loan. Suppose you decided to pay off this
             loan in 24 months instead of 60 months. What would happen to the monthly payment and to the total amount
             you would pay?
             a. monthly payment would increase; total payment would increase
             b. monthly payment would decrease; total payment would decrease
             c. monthly payment would decrease; total payment would increase
             d. monthly payment would increase; total payment would decrease

                       $2,000 Installment Loan at 10% Interest
             Term of Loan                  24 Months       48 Months
             Monthly Payments                 $92              $50
             Total Interest                   $197             $415
             Total Payment                   $2,197          $2,415

____    2.         Based on the table, if you pay off this loan in 48 months instead of 24 months, how would your total
             interest change and by how much?
             a. Total interest would decrease by $218.
             b. Total interest would increase by $218.
             c. Total interest would decrease by $42.
             d. Total interest would increase by $42.
____   3.

                 Which picture shows a durable good?
            a. Product 1                                     c. Product 3
            b. Product 2                                     d. Product 4
____   4.
            [We are] a full-service financial institution providing a wide variety of financial products and
            services.... [We have been] serving communications employees and their families for 65
            years.... [Our] philosophy is...”people helping people.” For information about your
            company’s eligibility to offer...membership to employees, call [us].

                   This passage comes from what type of financial institution?
            a. commercial bank                                c. savings and loan association
            b. credit union                                   d. savings bank
____   5.   A financial institution that is owned and operated by members to provide savings accounts and low interest
            loans is a
            a. savings and loan.                              c. commercial bank.
            b. credit union.                                  d. savings bank.
____   6.   Which of the following is an example of a durable good?
            a. washing machine                                c. blouse
            b. hairbrush                                      d. gasoline
____   7.   What is the purpose of a credit check?
            a. to find out a borrower’s creditworthiness
            b. to offer credit cards to first-time borrowers
            c. to pay back the borrower’s loan in full
            d. to inform borrowers of their legal rights
____   8.   A usury law
            a. restricts the amount of credit a financial institution can offer.
            b. sets maximum interest rates consumers can be charged.
            c. defines lending practices for state financial institutions.
            d. allocates credit based on need.
____   9. Even when a person declares personal bankruptcy, he or she must continue to pay
          a. all creditors.                            c. taxes.
          b. credit card bills.                        d. ongoing court costs.

                          $1,000 Credit Card Balance at 9% Interest
            Monthly Payment           Time to Pay Off         Total Interest Paid
                  $15                 7 years, 8 months              $376
                  $30                 3 years, 3 months              $145
                  $45                 2 Years, 1 month                $89
                  $60                 1 year, 6 months                $63
           *Minimum required payment is $15 per month.

____ 10.         Based on the table, if you paid $45 instead of $15 each month on your credit card bill, how much would
           you reduce the total interest you would have to pay?
           a. $313                                          c. $82
           b. $287                                          d. $89

____ 11.        Based on the table, how long would it take you to pay off your $1,000 credit card balance if you make
           the minimum required payment each month?
           a. 7 years, 8 months                           c. 2 years, 1 month
           b. 3 years, 3 months                           d. 1 year, 6 months
____ 12.
           If the coming holidays will be supercharge season for your credit cards, it’s more important
           than ever to know when payments are due. Card issuers have hair triggers when it comes to
           assessing late fees, so if your check arrives even one day late, you’ll probably be slapped with
           a $29 penalty. . . . Fortunately, you may now get some breathing room. When Citibank
           recently acquired 13 million Universal card accounts, it declared that payments would never
           be due on holidays or weekends.

           Source: Kiplinger’s Personal Finance Magazine, November 2000.

                Suppose you use a credit card that is not from Citibank. Your next payment is due on January 1, the
           New Year’s holiday. Based on the passage, you will likely be charged a late fee unless you mail your payment
           a. early enough to arrive within the grace period after January 1.
           b. anytime before January 1.
           c. on January 1.
           d. early enough to arrive before January 1.
____ 13.
                                          Sec. 1691. - Scope of prohibition
           (a) Activities constituting discrimination
           It shall be unlawful for any creditor to discriminate against any applicant, with respect to any
           aspect of a credit transaction -
                        (1) on the basis of race, color, religion, national origin, sex or marital status, or
                        age (provided the applicant has the capacity to contract);
                        (2) because all or part of the applicant's income derives from any public assistance
                        program; or
                      (3) because the applicant has in good faith exercised any right under this chapter.

           Source: Title 15, Chapter 41, Subchapter IV, Sec. 1691. Accessed at Legal Information
           Institute, Cornell University.

                  This passage comes from what federal consumer credit law?
           a. Truth in Lending Act                           c. Equal Credit Opportunity Act
           b. Fair Credit Reporting Act                      d. Fair Credit Billing Act
____ 14.   After individuals declare personal bankruptcy,
           a. they have no trouble reestablishing their credit.
           b. they can keep most of what they own.
           c. all of their creditors will be paid off.
           d. the bankruptcy proceedings stay on their credit record for 10 years.
____ 15.   What is the main factor lenders consider in determining a person’s creditworthiness?
           a. finance charges                                c. character
           b. cash available                                 d. credit rating
____ 16.   Which type of financial institution controls the largest amount of funds and offers the widest range of
           a. savings bank                                   c. savings and loan association
           b. commercial bank                                d. credit union
____ 17.   What do you have to pay when you borrow funds?
           a. principal plus collateral                      c. the amount you borrowed
           b. principal plus interest                        d. twice the amount of the loan
____ 18.   Credit cards such as Visa and MasterCard are issued by
           a. banks.                                         c. credit card companies.
           b. finance companies.                             d. mortgage companies.
____ 19.
                    Credit Card Charge of $400 at 10% Interest
           Amount Charged                    $400.00        $400.00
           Interest at 10%                    $40.00         $40.00
           Annual Membership Fee               none          $10.00
           APR                                 10%             ?

                What percentage should appear in place of the question mark in the illustration?
           a. 10%                                       c. 12.5%
           b. 2.5%                                      d. 20%
____ 20.
                             Method for Computing Finance Charge at XYZ Bank

           No finance charge is applied if full payment is received within 25 days after the date of the
           last billing statement. If full payment is not received, then a finance charge for the unpaid
           amount is added to the next month’s bill.

                What method of computing the finance charge does this passage describe?
           a. previous balance                        c. average daily balance
             b. adjusted balance                             d. past due balance


             Using Key Terms
             Match each item with the correct statement below.
             a. credit card                                 f.   interest
             b. commercial bank                             g.   credit bureau
             c. charge account                              h.   secured loan
             d. credit                                      i.   collateral
             e. mortgage                                    j.   bankruptcy
____   21.   amount of money a borrower must pay for the use of someone else’s money
____   22.   receipt of money to buy goods or services in the present with the promise to pay for them in the future
____   23.   device that allows a person to make purchases without paying cash
____   24.   bank whose main functions are to accept deposits, lend money, and transfer funds among banks, individuals,
             and businesses
____   25.   private business that investigates a person to determine the risk involved in lending money to that person
____   26.   something of value that a borrower lets the lender claim if a loan is not repaid
____   27.   installment debt owed on houses, buildings, or land
____   28.   the state of legally having been declared unable to pay off debts owed with available income
____   29.   credit that allows a consumer to buy goods and services from a particular company and pay later
____   30.   loan backed up by collateral

             Using Key Terms
             Match each item with the correct statement below.
             a. usury law                                   f.   installment debt
             b. finance charge                              g.   finance company
             c. durable goods                               h.   mortgage
             d. annual percentage rate                      i.   unsecured loan
             e. interest                                    j.   collateral
____ 31. installment debt owed on houses, buildings, or land
____ 32. something of value used to secure a loan
____ 33. financial institution that takes over contracts for installment debts from retailers and receives a fee for
         collecting the debt
____ 34. cost of credit expressed monthly in dollars and cents
____ 35. a law restricting the amount of interest that can be charged for credit
____ 36. amount of money a borrower must pay for the use of someone else's money
____ 37. cost of credit expressed as a yearly percentage
____ 38. loan guaranteed only by a promise to repay it
____ 39. manufactured items intended to last more than three years
____ 40. type of loan that is repaid in equal payments over a fixed period of time

Short Answer
Use complete sentences to answer

             In one sentence, describe the trend depicted in this graph.

      “Some [credit] cards will give students teaser interest rates of about 5%, which last about six
      months. After the time is up, the rate could jump to 19%... [Credit card] companies get ahead
      of the competition by offering benefits, such as frequent-flyer miles. The benefits [Visa
      offers] range from dining privileges to guaranteed airport parking to travel-accident

      Adapted from Melissa Skopelja, “Student Finance: Catch-22, “ The Ball State Daily News
      (September 10, 2003).

              Make a list of all the incentives mentioned in the passage that credit card companies
              use to attract customers.

            Suppose you see an advertisement for a credit card that offers an annual percentage
            rate of 3 percent. Based on the excerpt, what else should you find out in order to
            determine if the card is a good deal?

           What is the significance of the cloud in this cartoon?

45. Finding the Main Idea Why do many college students find themselves over their heads in credit card debt?
46. Understanding Cause and Effect Why do you think credit cards are more popular today than they were 40
    years ago?

      Understanding Percentages
      Read the table then answer the following questions.
                                                             Anual Percentage
           Credit Card Issuer            Annual Fee
      First National Bank                  No fee                          9.5%
      Premium First                          $50                           7.5%
      Federal Savings                        $35                         10.0%
                                       Table 4-1

            How much annual interest would Premium First charge you for a year on an unpaid
            balance of $3,500?

            On an unpaid balance of $3,500, how much more interest would you pay per year if
            your credit card is issued by Federal Savings instead of Premium First?

             For which kind of credit card user would First National Bank’s card make the most

            On an unpaid balance of $1,500, how much less interest would you pay per year if
            your credit card is issued by Premium First instead of First National Bank?
             Why might you be willing to pay the high annual fee that Premium First charges?

               Credit Card Charge of $400 at 10% Interest
      Amount Charged                    $400.00        $400.00
      Interest at 10%                    $40.00         $40.00
      Annual Membership Fee               none          $10.00
      APR                                 10%             ?

             Find the question mark in this illustration. Describe in words, not numbers, how you
             would compute the percentage that should replace the question mark.

53. Making Comparisons What are the advantages and disadvantages of using debit and credit cards?

      Debt is not itself a bad thing. Used properly, credit allows young families to buy their own
      homes and acquire other trappings of middle-class life without waiting until middle age.
      Homeownership, in turn, gives these families a stake in their communities and encourages
      them to take an active role in keeping it a good place to live. But easy credit—and plainly
      credit is very easy today—creates a temptation to push the envelope, to live at a higher level
      than the borrower can safely afford.

      The Washington Post, May 10, 1999.

             In one sentence, summarize the main idea of this passage.
                $2,000 Installment Loan at 10% Interest
      Term of Loan                  24 Months       48 Months
      Monthly Payments                 $92              $50
      Total Interest                   $197             $415
      Total Payment                   $2,197          $2,415

             Based on this table, describe in general how you would expect your monthly
             payments, total interest, and total payment to change if you were to pay off this loan
             in 12 months instead of 24 months.

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