Quiz | June 2013

Economics 101

The economy is all over the news lately. But do you really know how our nation's economy works or how it affects your pocketbook?

We've pulled together a basic ten-question test on economic principles. See how you fare:

Quiz

Economics 101

Question 1 of 10

1. What is the definition of a recession?

A. GDP growth is negative for two consecutive quarters
B. The Dow plunges 1,000 points in a week
C. Unemployment rises by 10 percent in 12 months or less

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Economics 101

Question 1 of 10

1. What is the definition of a recession?

You're right! A. GDP growth is negative for two consecutive quarters is correct.

Sorry, wrong! is incorrect.

The right answer is A. GDP growth is negative for two consecutive quarters.

Gross domestic product (GDP) is the overall measurement of a country's economic activity. A recession is generally defined as a period when GDP growth is negative for two consecutive quarters. While stock-market losses and rising unemployment can accompany a recession, it’s the significant decline in economic activity over several months or more that signals a recession.

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Economics 101

Question 2 of 10

To decrease the national debt, U.S. consumers need to live within their means.

A. True
B. False

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Economics 101

Question 2 of 10

To decrease the national debt, U.S. consumers need to live within their means.

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

Although living within their means will do wonders for consumers' personal finances, it won't help the national debt. That's the responsibility of the federal government, which is spending more money than it's bringing in. As of June 2013, the U.S. government was more than $16.7 trillion in the hole.

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Economics 101

Question 3 of 10

John lost his job last year. After several unsuccessful interviews, he gave up his search two months ago. Technically, John is now considered...

A. Employed
B. Unemployed
C. Neither

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Economics 101

Question 3 of 10

John lost his job last year. After several unsuccessful interviews, he gave up his search two months ago. Technically, John is now considered...

You're right! C. Neither is correct.

Sorry, wrong! is incorrect.

The right answer is C. Neither.

The U.S. Bureau of Labor Statistics defines unemployed people as those who do not have a job, have been actively looking in the prior four weeks, and are available for work. Employed people must have worked for pay during the week that the BLS conducts its labor-force survey. John meets neither definition. Technically, John is considered a “discouraged worker,” which means he wants to work and has looked for a job in the past 12 months (but not in the past four weeks), but he’s given up on his job search specifically because he believes there are no jobs available for which he qualifies.

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Economics 101

Question 4 of 10

When it comes to your finances, falling interest rates are...

A. Good for borrowers, bad for savers
B. Good for savers, bad for borrowers

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Economics 101

Question 4 of 10

When it comes to your finances, falling interest rates are...

You're right! A. Good for borrowers, bad for savers is correct.

Sorry, wrong! is incorrect.

The right answer is A. Good for borrowers, bad for savers.

Falling interest rates are good when borrowing money because you'll pay less in interest charges. For example, it can make a good time to buy a home, refinance a mortgage or shop around for a better credit-card rate. However, falling rates are bad news for savers as the rate of return on savings accounts and CDs drop, too.

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Economics 101

Question 5 of 10

Why should you care about inflation?

A. It affects your purchasing power
B. It can affect the monthly payment on a fixed-rate mortgage
C. Because proper tire pressure can reduce gas costs

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Economics 101

Question 5 of 10

Why should you care about inflation?

You're right! A. It affects your purchasing power is correct.

Sorry, wrong! is incorrect.

The right answer is A. It affects your purchasing power.

Inflation, as measured by the Consumer Price Index, is the increase in the average price of certain goods. And as prices go up, your dollar buys less. For instance, 30 years from now, at an average annual inflation rate of 3%, $1 million will roughly have the same purchasing power as $400,000 does today.

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Economics 101

Question 6 of 10

Who controls monetary policy in the United States?

A. The President
B. U.S. Treasury
C. Federal Reserve

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Economics 101

Question 6 of 10

Who controls monetary policy in the United States?

You're right! C. Federal Reserve is correct.

Sorry, wrong! is incorrect.

The right answer is C. Federal Reserve.

Monetary policy involves regulating the country's money supply and interest rates to either stimulate or slow the economy. And that's the job of the Federal Reserve. The Fed manages open market operations (the buying and selling of government bonds), reserve requirements (the amount of money banks have to stash) and the discount rate (how much the Fed charges for loans to banks).

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Economics 101

Question 7 of 10

When the value of the U.S. dollar falls, what does that mean for your personal finances?

A. Overseas travel is more expensive
B. Imported goods cost more
C. Your foreign investments are worth more
D. All of the above

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Economics 101

Question 7 of 10

When the value of the U.S. dollar falls, what does that mean for your personal finances?

You're right! D. All of the above is correct.

Sorry, wrong! is incorrect.

The right answer is D. All of the above.

The downside of the falling dollar includes pricier travel and imported products. On the upside: If you invest in overseas markets or mutual funds, your money is worth more as foreign currencies rise against the dollar.

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Economics 101

Question 8 of 10

Generally, which is healthiest for the economy?

A. High inflation
B. Low inflation
C. Deflation

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Economics 101

Question 8 of 10

Generally, which is healthiest for the economy?

You're right! B. Low inflation is correct.

Sorry, wrong! is incorrect.

The right answer is B. Low inflation.

Some inflation is good for economic vitality. High inflation, however, is worrisome because as prices rise quickly, consumers stop spending. Deflation, or a sustained period of falling prices, also reduces economic activity because consumers have incentive to postpone purchases.

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Economics 101

Question 9 of 10

As unemployment rates rise ...

A. Paycheck values go up
B. U.S. exports increase
C. Home foreclosure rates rise

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Economics 101

Question 9 of 10

As unemployment rates rise ...

You're right! C. Home foreclosure rates rise is correct.

Sorry, wrong! is incorrect.

The right answer is C. Home foreclosure rates rise.

More homes go into foreclosure as unemployment worsens because people cannot afford to pay their mortgages. Possibly just as harmful as unemployment itself is the fear of losing a job because it leads people to postpone purchases of big-ticket items.

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Economics 101

Question 10 of 10

What is the overall measurement of a country's economic activity?

A. Consumer confidence
B. General debt productivity
C. Gross domestic product
D. Purchasing power parity

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Economics 101

Question 10 of 10

What is the overall measurement of a country's economic activity?

You're right! C. Gross domestic product is correct.

Sorry, wrong! is incorrect.

The right answer is C. Gross domestic product.

The gross domestic product (GDP) encompasses everything the nation produces and consumes. If GDP declines, a red flag goes up because the economy could be in trouble. Both the Federal Reserve Board and Congress rely on GDP reports when formulating policies related to the economy.

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Economics 101

Results: 0 out of 10 Right

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