Personal Finance- Chapter 1

The key input for a cash budget is long-term financial goals.

False

The length of time you keep your money invested is less important than the rate of return you earn on your investments.

False

Wealthy people have a higher average propensity to consume.

False

Long-term goals are typically for periods of over 6 years

True

Your average propensity to consume is the percentage of each dollar of income, on the average, that is spent for current needs rather than savings.

True

A stronger economy leads to [higher employment | lower employment].

higher employment

Having numerous credit cards can [improve | hurt] your credit score.

hurt

For most people, debts [increase constantly | increase and then decrease] during their lifetimes.

increase then decrease

The Consumer Price Index is a measure of [unemployment | inflation].

inflation

The individual consumer is

the party around which the personal financial environment is centered

Typically people with the lowest incomes tend to be

very young or very old

[Putting money into a retirement fund | Buying a car] would be an example of current consumption

Buying a car

businesses provide

Goods and services

Investments are distinguished from savings on the basis of

Level of risk and expected return.

[Tax | Liability and insurance] planning is introduced early in the life cycle.

Liability and insurance

The government employs monetary and fiscal policy to help foster a [fast growing economy | no growth economy].

Neither

Federal income taxes are

Progressive

Utility refers to

The satisfaction you receive from purchasing something

Current consumption affects future consumption.

True

The heart of sound financial planning is improved standard of living.

True

The longer you wait to begin retirement planning, the less you will likely have in your retirement fund.

True

The median income of a person with a master's degree is more than double that of a person with only a high school diploma.

True

A primary determinant of your quality of life is

Wealth

[Disney stock | Your car] would be considered a financial asset.

Your car

Estate planning involves

considering how your wealth can be most effectively passed on to heirs.

Two key indicators of economic activity in the United States are production levels and [employment levels | cost of living].

employment levels

Martha is 80 and has a very high net worth. Her most important financial concern is probably her

estate

Inflation refers to

rising prices.

A good financial plan completed when one is in their 30s will typically last a lifetime.

False

A person making $35,000 and spending $30,800 has an average propensity to consume of 80%.

False

About 65% of Americans believe that money is freedom.

False

Accumulating wealth for later years is called estate planning.

False

An economic contraction usually begins after a trough is reached.

False

By saving $3,000 a year, Manny should have enough to send his newborn son to college by the time his son turns 18.

False

Inflation generally has little effect on personal financial planning.

False

Inflation means the price levels have declined.

False

Insurance provides a way to make money on unfortunate events.

False

One good way to save money is to purchase a new car every eight years to avoid high maintenance costs.

False

Over the long run, gaining an extra two percent on an investment makes little difference in earnings generated.

False

Reducing the money supply stimulates the economy.

False

Saving $3,000 for a large, flat-screen TV within the next 3 years is an example of a short-term goal.

False

Tangible assets are earning assets that are held for the returns they promise.

False

The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time.

False

The average American has less than $50,000 in savings.

False

The government employs monetary and fiscal policy to ensure the level of economic activity always remains stable

False

The need for financial planning declines as your income increases.

False

[GDP | CPI] is the total of all goods and services produced by workers located within the country.

GDP

The three key groups in the economic environment are

Government, consumers, and business

Personal financial planning involves translating financial goals into action plans.

True

Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or family.

True

The most effective way to achieve financial objectives is through financial planning.

True

Two persons with equal average propensities to consume will not necessarily have equal standards of living because of differences in income.

True

Typically, higher levels of education are rewarded with higher income over the lifetime.

True

Utility refers to the amount of satisfaction a person gets from buying certain items.

True

Wealth can be defined as the total value of all the things you own.

True

Your house is an example of a tangible asset.

True

Your personal value system will shape your attitude toward money and wealth accumulation.

True

As the rate of inflation increases, the purchasing power of your dollars will [increase | decrease].

decrease

During the expansion phase of the business cycle, the unemployment rate will [increase | decrease].

decrease

The best way to achieve your financial objectives is to [save every extra dollar you can | develop a sound financial plan].

develop a sound financial plan

For most people, employee benefits are of [little | major] importance.

major

Personal financial management is important because it

makes personal financial goals easier to achieve.

tax planning is most commonly done to

minimize taxes

The federal government [fiscal | monetary] policy is used to stimulate or moderate economic growth.

monetary

The federal government's [fiscal | monetary] policy is used to stimulate or moderate economic growth.

monetary

When investing, you should try to time the market [to buy when it's low | to sell when it's high].

neither

[Vacations | Education] would be considered a necessity of life.

neither

Ideally, retirement planning should begin

none of these

The average propensity to consume refers to the

percentage of income spent for current consumption.

The federal reserve's actions after the financial crisis of 2008 and 2009 resulted in [reduced interest rates | higher interests rates].

reduced interest rates

As the rate of inflation increases,

retirement plans have more difficulty meeting their goals.

The average [self employed | retired] household has higher income.

self employed

The average American starting a career today can expect to have at least [seven | ten] jobs during his/her lifetime..

ten

Government controls consumers and businesses by regulation and taxation.

True

Most families find it difficult to discuss money matters.

True

Mutual funds are examples of financial assets.

True

Nearly 35% of Americans say retirement planning is their most pressing financial concern.

True

Which of the following contributes to quality of life?

All of these. house, clothing, education, music

Which of the following is a measure of inflation based on changes in the cost of a market basket of consumer goods and services?

Consumer Price Index

After reaching adulthood, your financial goals will [stabilize | continue to change].

Continue to change

Your level of formal education is a [controllable | noncontrollable] factor that has a considerable effect on your income.

Controllable

____ tends to increase and then decrease over the life cycle.

Debt and income

Generally, as income rises, the average propensity to consume

Decreases

Saving for a child's education is an example of

Deferred spending

Effective financial plans should

Do all of these

While you are still working, you should be managing your finances for retirement planning. Which of the following is not a goal of your retirement planning?

Effectively passing wealth on to heirs

The average income of household heads increases until age [55 | 65] then income starts decreasing.

55

Money can be withdrawn from tax-deferred retirement accounts without penalty beginning at age [59 1/2 | 62 1/2].

59 1/2

About [50% | 75%] of married adults share all their money with their mate.

75%

Which of the following questions should you ask yourself when developing your financial goals?

All of these. How important is money to me? Am I a risk taker? What do I like to buy? Does money make me feel secure?

Employee benefits may include

All of these. Retirement plans, health insurance, employee discounts, tuition reimbursements,

Financial goals should be

All of these. specific, attainable, and prioritized

Following an economic trough, the economy will often enter a period of [expansion | contraction].

Expansion

Maria started a successful business in college and has grown it to millionaire status. Maria would be considered to have predominantly which type of attitude toward money?

Builder

The most important financial planning for young people concerns

Career

[Money | Inflation] is the common denominator for gauging all financial transactions.

Money

[Inflation | Consumer Price Index] is the amount of goods and services each dollar buys at a given point in time.

Neither item

Family financial goals should be

Realistically attainable

The primary reason people use financial advisors is

Retirement needs

The four stages of an economic cycle would not include

Stagnation

Financial planning is a dynamic process.

True

For most people working in large firms, employee benefits are an important part of their financial planning.

True

A financial goal that would be important in all stages of the life cycle is creating and maintaining an emergency fund.

True

A person who has $2,000 monthly income and spends $1,800 monthly has an average propensity to consume of 90%.

True

Businesses are a key part of the circular flow of income that sustains our free enterprise system.

True

Consumer choices ultimately determine the kinds of goods and services businesses will provide.

True

Decreasing taxes stimulates the economy.

True

Defining financial goals is an important first step in the personal financial planning process.

True

Effective financial plans are both economically and psychologically sound

True

Eliza's employer gives her a certain amount of money each year to spend on benefits of her choice. Eliza has a cafeteria plan.

True

Financial assets are paper assets, such as savings accounts and securities.

True

Financial assets include investments such as stocks and bonds.

True

Financial planning is a continuous, lifelong process.

True

Your income is directly related to

all of these: Your geographic location, your age, your education

Financial planning [does | does not] guarantee a sound financial future

does not

The primary determinant of your standard of living is your [wealth | propensity to consume].

wealth

"1 want to accumulate a comfortable retirement fund" [would | would not] be a specific financial goal

would not