Personal Finance Chapter 1

Long terms

More than 5 years

Intermediate goals

2 to 5 years

Higher interest rates

Individuals with poor credit ratings pay...

Consumer spending is an economic factor that can impact...

Inflation, employment, wage, global, interest

Future value

The amount to which current savings will increase based on a certain interest rate and a certain time period

Lenders

inflation has more of a negative impact on:

Personal values, economic factors, life situtation

3 main elements that affect overrall financial planning

False

CPI is an accurate measure of inflation in the U.S.

Present value

Current value for a future amount based on a particular interest rate for a future time. Aka discounting

Deflation

Decline in prices

Money

Interest rates represent the true cost of...

Consumable product

Items used relatively quickly; food, clothing, entertainment

Time value of money

Key factor in making financial decision is...

Time value of money

Measures the increase in the amount of money in a savings account as a result of interest earned

Opportunity cost

What a person gives up by making a choice

Short term goals

Within a year; Vacation, small debts

opportunity costs

You can invest your money in the stock market now; however that would require a trade-off or:

increased spending-increased demand

a cause of inflation is a decrease in supply of products when there is..

Durable product

infrequently purchased, expensive items; cars, appliances; tangible items

demand and supply of goods and services

interest rates are affected by the following:

Rule of 72

72/percent

Inflation

A rise in the general level of prices

True

An increase in demand of goods and services increases employment potential

Consumer price index

Measure of the average change in the prices urban consumers pay for a fixed basket of goods and services

True

More imports than exports reduces funds available for domestic spending, investment

Federal Reserve system

Nation central bank

Personal factors that impact financial decisions

Personal beliefs, age, income, household size

Present value

The current value for a future amount based on a certain interest rate and a certain time period; also referred to as discounting

Risk premium

The extra amount that you can expect to receive for investing in an instrument due to factors such as expected inflation and

consumer spending, business expansion

The fed attempts to make adequate funds available for...

Federal reserve

The fed is maintaining an adequate money supply

Demand

The main cause is an increase in consumer spending (demand) without equal increase

Adult Life Cycle

The stages in the family situation and financial needs of an adult is called the

Decrease

When consumer saving and investing increase

an intermediate goal that affects a long-term goal

saving for four years for a down payment on a house affects how soon you are able to purchase a home

setting an action-oriented goal

saving money now for retirement

Future value computations

Compounding allows the future value of a deposit to grow faster than it would if interest were paid only to the original deposit

Financial Plan

formalized report that summarizes your current financial needs and recommends future financial activities

necessities; nonessential

hidden inflation exists when the cost of ___ rise at a higher than items

persons with fixed incomes

the demographic that is most affected by inflation is:

supply

the main cause of inflation is an increase in consumer spending (demand) without equal increase in:

Financial Planning Process

1. determine current financial situation 2. determine financial goals 3. alternative courses of actions 4. asses and consider other factors 5. create and implement financial action plan 6. review and revise financial plan

number and age of household members, age, employment, martial status

what are the four situational influences for financial decisions?

Annuity

Series of deposits or payments

Financial Planning Activities

Obtaining Planning Saving Borrowing Spending Managing Risk Investing Retirement and Estate Planning

Labor force, government, business

What institutions collectively create the national economy

decrease

When the level of exports of U.S. made products is lower than imported goods, this will typically cause the money supply to: