Economics Final Exam Study Guide Financial Peace/Dave ...

Economics Final Exam Study Guide

Financial Peace/Dave Ramsey Curriculum

Chapter 1

7 Baby Steps 1. $1,000 in an emergency fund (of $500 if you make less than $20,000 per year). 2. Pay off all debt except the house utilizing the debt snowball. 3. Three to six months of expenses in savings. 4. Invest 15% of your household income into Roth IRAs and pre-tax retirement plans. 5. College funding. 6. Pay off your home early. 7. Build wealth and give!

Compound interest--interest paid on interest previously earned Emergency fund--best kept in a money market account

Chapter 2

KISS Rule of Investing: Keep It Simple Stupid! Never invest using borrowed money Diversification--means to spread around--diversification lowers risk As risk goes up, so does the return (generally) Liquidity--the availability of your investments (generally the more liquidity, the less return) Types of Investments:

Money Markets--low risk accounts with check writing privileges Single Stocks--carries a high degree of risk

--a stock is a small piece of the company --your return comes as the company increases in value Bonds--an debt instrument by which the company owes you money Mutual Funds--investors pool money to invest --portfolio managers manage the pool or fund Real Estate--Do not invest in real estate unless you have lots of cash Annuities--purchased through an insurance company--a bad investment with a low rate of return Bad investments: Gold, Day trading, Viaticals, Also--never put money into something you don't understand

Chapter 3

Invest 15% of your household income into Roth IRAs and pre-tax retirement plans IRA--Individual Retirement Arrangements--tax treatment on virtually any type of investment Roth IRA--after tax IRA that grows tax free 401(k)--typical retirement plan at most companies (many companies will match contributions up to a certain percentage--major benefit of 401(k)) Pension plans--most companies have completely done away with traditional pension plans

--asset of the company (not yours) --funded automatically by your company--you don't have to contribute Retirement loans--never borrow on your retirement plan!

Chapter 4

Debt --has been marketed to us with such intensity for so long that it requires a paradigm shift--a completely new way of looking at things --Henry Ford, Sears and J.C. Penney did not believe in debt "The rich rule over the poor and the borrower is slave to the lender." Proverbs 22:7 --Don't loan money to friends or family--it changes your relationship --the lottery is a tax on the poor and on people who can't do math--it will not make you rich --stay away from car payments by buying reliable used cars --average car payment today is $ 464 per month over 64 months! --leasing a car is the most expensive way to finance and operate a vehicle --new cars lose a lot of value in the first four years --don't' take out more than a 15 year fixed rate mortgage on your home --don't take out an adjustable rate mortgage (ARM) --ARMs transfer the risk of higher interest rates to you instead of the bank --you don't need a credit card--use a debit card instead --you spend less when you use cash--it hurts more than using a credit card --teens are a huge target of credit card companies--you are loyal to the first card you get --80% of college graduates have credit card debt before they get a job --home equity loans are NOT substitutes for emergency funds --debt consolidation costs you money in the long run--you cannot borrow your way out of debt

Chapter 7

You must do a written budget every month --spend every dollar on paper before the month begins

Balance your checkbook monthly Use the envelope system--when a category is gone, you are done spending for that category Know how to balance a checkbook--page 97 of your workbook Irregular income planning--page 113 of your workbook

Econ Textbook Chapter 1 Vocab--be able to define and distinguish between these terms: Need Want Economics Goods Services Scarcity Shortage Factors of Production: Land, Labor, and Capital Physical capital Human capital Entrepreneurs Trade-offs "Guns or Butter" Opportunity cost "Thinking at the margin" Efficiency Underutilization Cost

Law of Increasing Costs Tasks that you should know how to perform: Understand and interpret a production possibilities curve Make and defend a decision based on the concept of trade-offs, opportunity cost, and thinking at the margins Explain how a production possibilities curve can be used to identify and discuss efficiency, growth, and cost Explain trade-offs using the law of increasing costs

Econ Textbook Chapters 2 and 3

Vocab--be able to define and distinguish between these terms:

Economic system Market Economies Centrally planned (command) economies Mixed economies Traditional economies Market

Specialization Households Firms Factor market Product market Invisible hand

Competition-regulating force Self-interest-motivating force Gross Domestic Product Business cycle Public good Market failure Externality Positive and negative externalities

Tasks that you should know how to perform:

How does each type of economic system answer the 3 key economic questions

Explain how the circular flow diagram explains the interaction between houses and firms

Compare and contrast different types of economies

Identify positive and negative externalities

Analyze information to identify a market failure

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download