Study Guide - Exam 1 (Section 2)

The current financial position of an individual or family is best presented with the use of a:

balance sheet.

Liquid assets refer to:

cash and items of value that can be easily converted to cash.

Financial payments that do not vary from month to month are referred to as variable expenses.

false

For many years, the United States has ranked highest among industrial nations in savings rate.

false

Furniture, jewelry, and an automobile are examples of liquid assets.

false

Opportunity costs are only associated with money management decisions involving long-term financial security.

false

Opportunity costs may be viewed only in terms of financial resources.

false

Planning to buy a car is an example of an intangible-purchase goal.

false

Present value is often referred to as compounding.

false

Time value of money refers to changes in consumer spending when inflation occurs.

false

Personal opportunity costs refer to time, effort, and health that are given up when a decision is made.

true

Reduced spending causes unemployment from staff reduction.

true

State and local governments may impose a personal property tax on the value of automobiles.

true

Take-home pay is a person's earnings after deductions for taxes and other items.

true

Tax evasion is the use of illegal actions to reduce one's taxes.

true

Ben Chase needs to pay off some of his debts over the next few months. Which item on his balance sheet would help him decide what amounts are due within one year?

Current liabilities

Which of the following would be considered a long-term liability?

Mortgage

Opportunity costs refer to:

trade-offs associated with money management decisions.

A financial plan is another name for a budget.

false

A general sales tax is also referred to as an excise tax.

false

A personal balance sheet reports your personal income and expenditures.

false

Developing and using a budget is part of the "obtaining" component of financial planning.

false

Economics is the study of using money to achieve financial goals.

false

Gross Domestic Product (GDP) measures the total value of goods and services produced within a country's borders, excluding items produced with foreign resources.

false

In order to calculate a person's savings ratio, the amount saved each month is divided by net income.

false

Increased demand for a product or service will usually result in lower prices for the item.

false

Interest on savings is calculated by multiplying the principal amount times the opportunity cost times the annual interest rate.

false

Lenders benefit more than borrowers in times of high inflation.

false

Money management refers to long-term investment decisions.

false

Tax avoidance refers to the use of illegal actions to reduce one's taxes.

false

The principal purpose of taxes is to control economic conditions.

false

Payments that do not vary from month to month are ____________ expenses.

fixed

A personal balance sheet presents:

items you own and amounts you owe.

The value of items owned minus the amounts owed to others equals:

net worth.

Your aunt gives you some money for your birthday and you decide to put it into your savings account instead of spending it. The trade-off of not being able to spend the money now is an example of ________ cost.

opportunity

A person's net worth would increase as a result of:

reducing the amounts you owe to others.

Inflation reduces the buying power of the dollar.

true

Insolvency occurs when liabilities far exceed available assets.

true

Taxpayers should beware of tax preparers who offer your refund in advance (refund anticipation loans) and charge interest rates exceeding 300 percent.

true

Which of the following payments would be considered a variable expense?

Electricity bill

Which of the following are considered to be personal financial statements?

Personal balance sheet and cash flow statement

A common deduction from a person's paycheck is for:

Social Security taxes

A budget deficit would result when a person's or family's:

actual spending is greater than planned spending.

Cash and other tangible property (with a monetary value) that you own are referred to as:

assets

A person's net worth is computed by:

subtracting total liabilities from total assets.

A budget is a spending plan that outlines how you will spend available income.

true

A drawback of Flexible Spending Accounts is that any account funds must be used to pay for expenses incurred before year's end or the money is lost.

true

A person's filing status is affected by marital status and dependents.

true

A person's net worth is the difference between the value of the items owned and the amounts owed to others.

true

An estate tax is imposed on the value of an individual's property at the time of his or her death.

true

An exclusion is earnings not included in gross income.

true

An office audit requires that a person visit an IRS office to clarify some aspect of his or her tax return.

true

Capital gains refer to profits from the sale of stocks, bonds, or real estate.

true

Discretionary income is money left over after paying for housing, food, and other necessities.

true

Opportunity costs refer to what a person gives up when making a choice.

true

Real estate property taxes are the major source of revenue for local government.

true

Taxable income is a result of subtracting adjustments to income and standard (or itemized) deductions from gross income.

true

The Tax Cuts and Jobs Act simplified the basic form used when filing your taxes, so that there is now only one form, Form 1040, to report your income.

true

Trade balance is defined as the difference between a country's exports and its imports.

true

WiseBanyan is an innovative website that offers a free financial advisor that suggests and manages investments for your financial goals.

true