Econ Chapter 1

interest rates are affected by:

demand AND supply for/of goods and services

managing risk is not a financial planning activity. T or F??

FALSE

watch costs 100 now. with 4% inflation, how much will it cost next year?

104 dollars

at 3.6 interest rate how long will it take for the account to double by the rule of 72?

20 years

inflation on clothing is 8% and inflation on washing machines is 4%.. what is the hidden inflation?

4%

fred has good credit and pays 5% interest and Bob has bad credit so he pays 11% interest. What is the difference in interest paid?

6%

the first step of the financial planning process:

determine current financial situation

investing money in the stock market is a (another name for trade off)

opportunity cost

these activities are suitable for people age 50 and over:

reviewing will and estate plans, purchasing long term care coverage, and reviewing retirement facilities.

the purpose of the ____ system is to act as the nation's central bank

federal reserve

what are some things that cause people in 50's to spend money differently than people in their 20's?

income, household size, and age

spending money from savings results in a

loss of interest

who is most affected by inflation?

people with fixed incomes

common financial goals and activities?

purchasing life AND health insurance and planning for retirement.

more imports than exports ___ funds available for domestic spending

reduces

consumer, business, gov't and foreign borrowing increase the demand for money and interest rates tend to:

rise

personal opportunity costs related to health are:

avoiding exercise which results in increased health care costs, poor eating habits that result in illness and lack of sleep that results in illness.

the Fed has indirect control over interest rates and attempts to make adequate funds available for:

business expansion and consumer spending

which institutions create the national economy?

businesses, gov't and labor force

this element that affects personal financial planning is not controlled at all by the person

economic factors

what measures the increase in the amount of money in a savings account as a result of interest earned?

time value of money

what are methods to compute time value of money?

time value of money tables, financial calculators, excel sheets, and math formulas

an increase in demand of goods and services will most likely cause an increase in:

employment

planning for retirement, saving for child's college, and planning purchase of vacation home are??

long term goals

interest rates represent the true costs of ____.

money

example of an intangible purchase goal:

a vacation

compounding is also called

future value computations

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

an increased spending or increased demand

the amount to which current savings will increase based on certain interest rate and a certain time period is called?

future value

sound financial goals for a young family are:

saving for college for children and having adequate life insurance for the children

a formalized report that summarizes current financial situation, analyses financial needs, and recommends financial activities is a:

financial plan

what type of financial goal is the infrequent purchases of things like cars and kitchen appliances?

durable-product goals

3 main elements that affect overall financial planning?

economic factors, personal values, and life situation.

two main reasons Americans have financial problems?

advertising and availability of goods lead to overspending, poor planning, and weak money management habits

in time value of money calculations, the future value of an amount will always be greater than the original amount. T or F??

TRUE

these are situational influences for financial decisions:

employment situation, number and age of household members, age, and marital status

why is goal setting an important aspect of personal financial growth?

goal setting assists with the financial decision making.

less money in savings because you bought energy saving appliances and trading in large car for small car with good gas are

opportunity costs

no high yield because you have set aside funds in low risk investment and less take home pay because you increased tax withholdings for larger tax refund are

opportunity costs

how does rapidly increasing unemployment rate influence a person with a job?

person will make decisions to lower risk and person will focus on ways to preserve savings and maintain financial security.

what do people assess when the global markets and economies begin to slow?

personal and economic factors

opportunity costs can be viewed as:

personal and financial costs

these are personal factors that impact financial decisions

personal beliefs, age, income, and household size

these are activities of 50+ couples with no children at home

planning for part time work, changing household budget for future

what do you call the current value of a future amount based on a certain interest rate and for a certain time period?

present value

how is money maintained by the federal reserve?

through lending, interest rates, and buying/selling of gov't bonds

when developing goal setting guidelines, you should have a set ___ frame for the goals to be achieved.

time

need the following items to calculate the time value of money:

principal, annual interest rate, and length of time

americans spending dollars on goods and service offered by american and foreign companies is an example of:

global economy and foreign competition

these activities are best for people age 18-35:

purchasing disability insurance, establishing financial independence, and considering home purchase for tax benefit.

these are activities for single parents with children under 18:

purchasing insurance for health, life, and disability.. saving money for college, and naming guardians in will for children

this represents the "extra" amount that you can expect to receive for investing in an instrument due to factors such as expected inflation and uncertainty of getting your money back

risk premium

you may have differences when computing time value of money when using different techniques due to:

rounding

food and clothing are examples of:

short term consumable goods

what 3 things should you take into account when determining goal-setting guidelines?

spending, investing, and saving

when your investments are increasing, what is one way that you do not lose sight of your goals?

state you goals in specific and measurable terms.

PERSONAL opportunity costs include using your time and money OR using time in place of money in order to:

study to achieve academic goals, exercise to maintain good health, and satisfy personal goals.

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

the adult life cycle

a bank made a loan with 5% interest, but the current inflation is 8%.. this means:

the bank is losing 3% of buying power

an important opportunity cost is

time

a decrease in money supply results in an increase in:

unemployment and interest rates

these are activities for households with many generations:

using dependent care services, making elder care plans, and purchasing insurance for dependents

personal ___ are the ideas and principles that a person considers correct, desirable, and important

values

examples of opportunity costs do NOT include

having enough money to fund retirement and pay for current expenses and being able to work and go to school at the same time.

CPI is NOT an accurate measure of ____ in the US

inflation

rise in general level of prices?

inflation

key factors in making financial decisions include:

inflation costs, time value of money, and financial opportunity costs

developing a savings plan to save money for the next 3 years for a down payment on a house are what type of goals?

intermediate and short-term

saving for four years for the down payment for a house affecting how soon you purchase the house is an example of what?

intermediate goal that affects a long-term goal

inflation has a more negative impact on:

lenders

what are the main elements that affect overall financial planning?

life situation, economic factors, and personal values

the following are activities for a young couple with dual income and no children:

making tax deferred contributions for retirement, coordinating insurance coverage, and developing investment plans.

every financial decision has a tradeoff, also known as:

an opportunity cost

series of equal deposits or payments

annuity

3 methods that help develop successful financial habits are:

focusing on a spending plan, providing adequate insurance, and understanding investment info

these activities are best for younger couples with children under the age of 18:

carefully managing credit, naming guardians of children in will, and purchasing insurance for care of dependents.

the measure of the average change in the prices urban consumers pay for a fixed "basket" of goods and services is called the:

consumer price index

wage levels, green initiatives, inflation, interest rates, and employment are influences by which factor

consumer spending

American ___ provide foreign companies with a market

consumers

when exports outweigh imports, this will cause money supply to..

decrease

compounding is to future value as ____ is to present value

discounting

rule of 72 is used to determine the time that it would take your money to:

double

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

necessities, nonessential