Focus on personal finance - ch 1

Inflation

A rise in the general levels of prices.

Time value of money

Increase in an amount of money as a result of interest earned.

Rachel has been shopping for a new refrigerator for over the course of three days and has been putting all her household chores on hold. She has she finds a refrigerator that fits her needs and purchase is it this is example of

Personal opportunity costs

adult life cycle

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

The risk premium includes the following factors:

-expected inflation -length of time -interest rates -uncertainty of getting money back

Every financial decision has a trade off also known as

An opportunity cost

Deflation is a decline in prices, which often results in consumers __________ They're spending as they expect the prices to go even lower

Decreasing

The rule of 72 is used to estimate the time that it would take for your money to:

Double

The rule of 72 is used to determine the time that it would take for your money to double.

False

The ______________ ______________ System is the Central bank of the United States and has a significant economic responsibility.

Federal Reserve

The measure of the average change in the price is urban consumers pay For a fixed basket of goods and services is called the consumer price _______________.

Index

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

Risk

Your financial goals are the basis for measuring the progress is what

Spending, saving, investment activities

Economics

The study of how wealth is created and distributed.

The goal of setting guidelines should be Time-based indicating that you should have a set __________ frame For the goals to be achieved

Time

opportunity cost

What a person gives up by making a choice.

Values

ideas and principles that a person considers correct, desirable, and important

SMART

S- specific M-measurable A-action oriented R-realistic T-Time-based

Future Value

The amount to which current savings will increase based on a certain interest rate and a certain time; also referred to as compounding.

True or false: Personal opportunity costs relating to health may include illness and time away from school or work

True

Interest rates are affected by the following: -Time value of money -supply of goods and services -The cost of real estate only -demand for goods and services

-Supply of goods and services -demand for goods and services

Sound financial goals for a full-time student might include: -buying fancy new clothes -saving money for buying a new car each year -saving for a higher education -taking frequent expensive vacations

Saving for higher education

SMART financial goals

Specify your goals and will help you know your goals, create a plan to achieve them, and measure so you can see if you achieve them

Common financial goals and activities include

-purchasing life insurance -Planning for retirement -Purchasing health insurance

financial plan

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

Food and clothing or examples of

Short term consumable goods

Samantha wants to buy a new watch that cost $100. She decides to wait a year. All other factors being equal, if inflation is 4%, the watch will cost $__________ next year.

$104

Which of the following is not true? -CPI is a totally accurate measure of inflation in theU.S. -consumer price index measures changes in the price of a basket of goods and services -Hidden inflation is when the cost of necessities rises at a higher level than nonessential items -inflation rates can be deceptive

-CPI is totally accurate measure of inflation in the U.S.

What are the two main reasons Americans have financial problems?

-advertising efforts and availability of goods encourages overspending -Poor planning, weak management of money habits

What are some factors that may cause people in their 50s to spend money differently than people in their 20s?

-household size -income levels -personal beliefs

John has an interest rate of 7.2% on his savings account. Using the rule of 72, his money will double in _________ years.

10 years

Bankruptcy

A set of federal laws allowing you to either restructure your debts or remove certain debts.

An example of an intangible purchase goal is:

A vacation

The main purpose of the federal reserve is to:

Act as the central bank and maintain an adequate money supply

American consumers spend dollars on goods and services. The goods and services are manufactured or offered by American companies and companies from other countries. This is an example of: A: American exceptionalism B: A global economy and foreign competition C: economic factors and opportunity cost

B: A global economy and foreign competition

A rise in the general level of prices is called: A: consumer price index B: inflation C: interest costs D: trade balance

B: inflation

Individuals with poor credit ratings will typically pay: -lower interest rates -The same rates as all others -an average of all borrowers -higher interest rates

Higher interest rates

Hidden inflation exists when:

The cost of necessities rises at a higher rate than nonessential items

Present Value

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

Personal values have a direct influence on such decisions as spending now versus saving for the future

True