Financial Literacy Exam

Financial Literacy Exam What was the median household income according to the 2015 U.S. Census? - $56,000 People who work hard, live below their means, and start saving early will likely become what? - Millionaires Walter Bagehot thought that it was whose job to hold the gold so that all the smaller banks did not have to? - Bank of England (central bank) If your investments are too conservative (safe), you will earn a much smaller return on investment (ROI), and therefore adopting a more aggressive long-term investment strategy that is comprised mostly of __________ is the key to growing wealth. - Stocks Ideally, you should save what percentage of your salary each year for retirement, regardless of how much you earn? - 10% What term describes when customers simultaneously come to a fractional-reserve banking system financial institution and demand their paper money be converted to its metal equivalent? - Bank run By one estimate, John Law's French bank had about how many times as much paper bank notes in circulation as its gold and silver reserves making it a precursor to the banking system that is normal today? - Four In order to pay for the Nine-Year's War, King William's administration borrowed huge sums of money and used what to pay the loans back with interest? - Taxes What term describes the amount of funds that a bank holds in reserve to ensure that it is able to meet liabilities in case of sudden withdrawals and is also a tool used by the central bank to increase or decrease the money supply in the economy? - Reserve requirements What 17th century English innovation was a receipt for deposits of gold from the public, was as good as gold money, and rapidly became a generally accepted new currency? - Representative money bank notes Americans who aspire to become wealthy may be surprised that they do not need what? - All answers are correct In 1692, John Law observed how the English government was paid for by long-term debt and paper money and he marveled at what stimulating effects of paper money? - All answers are correct Genghis Khan's grandson took measures to insure the authenticity of his currency and what was the punishment if anyone forged it or would not accept it as payment? - Death Victorian banker-journalist Walter Bagehot examined the difference in the appearance of bank solidity and the reality that Victorian banks kept going bankrupt and he concluded that the cause of these multiple bank crises were due to what? - Lending money to people who cannot pay it back John Law thought that the crucial thing was to get money moving around the economy and to use it to stimulate trade and what? - Business Which new invention, backed by the authority of the state, did Kublai Khan implement in 1260? - Paper money What is the biggest factor that determines whether you can save $1 million for retirement on an average salary? - The age when you started investing When the deeply indebted King of France, Louis XIV, died in 1715, John Law advised the new child King's regent that what is "not the value FOR which good are exchanged, but the value BY which they are exchanged?" - Money In America today, whose role is it to guarantee the profitability of banks and be "the lender of last resort" in a time of crisis? - The Federal Reserve In 1694, the English government borrowed 1.2 million pounds at a rate of 8% and in return the lenders were allowed to incorporate themselves into what new company? - Bank of England What type of modern day banking system functions by requiring banks to only hold a fraction of the money their customers' deposit as reserves which allows them to use the rest of it to make loans and thereby essentially create new money? - Fractional-reserve banking system What type of job would most likely enable achievement of millionaire status? - All answers are correct In 1689, the English King William's administration had to solve the problem of how to pay for what against King Louis XIV of France? - War In modern day banking, the less equity (money) the bank needs to keep as a margin of safety, the more money it could lend, and, therefore the more the bank can __________. - Profit Eight out of ten millionaires reach that milestone through what vehicle? - 401(k) What would be the result if you had invested the $60,000 you would have spent on a luxury car for 30 years with a 7% annual rate of return instead? - It would be worth about $490,000 One of the biggest mistakes made is not understanding the threat associated with _________ which prevents you from growing your money. - Debt John Law's ideas led him to the idea of a new national French bank that took in gold and silver from the public and lent it back out in what form? - Fiat money bank notes Walter Bagehot wrote that "the main source of profitableness of established banking is the smallness" of what? - Requisite (required) capital If a person earning the median household income invests $5,500 per year ($458 per month) from age 37 to 67 (30 years) with an 8% return, what would be the grand total at retirement? - $622,000