Deck 1: Understanding Personal Finance

Question 1

Inflation is defined as a steady rise in the general level of prices.

Answer 1

True

Question 2

By saving and investing,people are much more likely to have funds available for future consumption.

Answer 2

True

Question 3

Financial success is marked by having high wealth.

Answer 3

False

Question 4

An example of inflation is an increase in the price of coffee or gasoline or some other commodity.

Question 5

Being financially responsible is being knowledgeable about facts,concepts,principles,and technological tools that are fundamental to be smart about money.

Question 6

You cannot build financial security or wealth unless you spend less than you earn.

Question 7

Since it is impossible to make precise forecasts about economic trends,indicators such as inflation and interest rates can be ignored when planning your finances.

Question 8

Financial security is marked by having high income.

Question 9

Procyclical economic indicators are those that predict a positive change in the economy.

Question 10

The preferred stage of the economic cycle is the contraction phase.

Question 11

Leading economic indicators are those that do the best job of measuring the state of the economy at any point in time.

Question 12

One's standard of living comprises all his or her current consumption.

Question 13

Financial literacy is your knowledge of facts,concepts,principles,and technological tools that are fundamental to be smart about money.

Question 14

A business cycle is a pattern of economic activity that includes an expansion,peak,contraction,and trough.

Question 15

Personal finance is the study of personal and family resources considered important in achieving financial success.

Question 16

The index of leading economic indicators includes eight components of growth.

Question 17

The index of leading economic indicators is a composite index that suggests the future direction of the U.S.economy.

Question 18

The sum total of all economic activity is broadly measured by the gross domestic product.

Question 19

The typical U.S.recession is marked by an average economic decline of 6 percent.

Question 20

Your standard of living is where you would like to be and your level of living is where you actually are.

Question 21

Purchasing power is a measure of the goods and services that one's income will buy.

Question 22

Deflation involves falling prices.

Question 23

When one forgoes buying a new television set because he or she spends the money on college books,the television set is the opportunity cost of buying the books.

Question 24

In times of moderate to high inflation,people on fixed incomes suffer.

Question 25

Interest rates earned on short-term investments are generally lower than interest rates earned on longer-term investments.

Question 26

According to economic theory,people will seek additional utility as long as marginal utility exceeds marginal cost.

Question 27

Smart investors recognize that the degree of inflation risk is higher for long-term lending than for short-term lending.

Question 28

Deflation occurs in an economy when there is a contraction in the money supply.

Question 29

All things considered,a saver who earns 6 percent interest on a savings account when the rate of inflation is 6 percent is losing real purchasing power.

Question 30

Opportunity costs are strictly financial in nature and do not involve personal tastes and preferences

Question 31

The consumer price index is a broad measure of changes in the prices of all goods and services purchased for consumption by urban households.

Question 32

Real income and nominal income are two terms that reflect the actual purchasing power of one's income.

Question 33

In times of high inflation,personal incomes generally keep up with the rate of inflation.

Question 34

The rate of interest and the inflation rate generally move in opposite directions; when one goes up,the other goes down.

Question 35

The opportunity cost of a decision is the value of the next best alternative that must be foregone.

Question 36

Interest rates on home mortgages and other loans tend to fall during times of high inflation.

Question 37

When prices rise,the purchasing power of the dollar declines by the same percentage.

Question 38

Marginal cost is the incremental cost of one more incremental unit of something.

Question 39

When forecasting long-term inflation rates for financial planning purposes,it is better to err on the high side rather than on the low side.

Question 40

Interest is the price of money.

Question 41

Present value is the current value of an asset (or stream of assets) that will be received in the future.

Question 42

Present value is also known as discredited value.

Question 43

The present value of an annuity is the current worth of a stream of payments to be received in the future.

Question 44

Simple interest is always assumed in time value of money calculations.

Question 45

Compounding occurs when earnings are withdrawn from a savings or investment account each period.

Question 46

Tax-exempt income is preferable to tax-sheltered income.

Question 47

Some employee benefits are tax-sheltered,such as flexible spending accounts and retirement plans.

Question 48

Simple interest is the interest computed on principal only,without adding the interest to the principal to determine future interest.

Question 49

An employee benefit is compensation for employment that takes the form of wages,salaries,commissions,or other cash payments.

Question 50

Compounding serves as the basis of all time value of money considerations.

Question 51

Financially successful people often pay U.S.federal income taxes at the 25 percent,or higher,marginal tax rate.

Question 52

Tax-sheltered income is preferable to tax-exempt income

Question 53

One's average federal income tax rate is generally higher than one's marginal tax rate.

Question 54

Most financially successful taxpayers have to pay federal income taxes at the 15 percent marginal tax rate.

Question 55

Compound interest will produce larger investment values than simple interest.

Question 56

The simple-interest formula assumes that the interest is withdrawn each year.

Question 57

Future value is the valuation of an asset projected to the end of a particular time period in the future.

Question 58

A flexible spending account is an employer-sponsored account that allows employee-paid expenses for medical or dependent care to be paid with employee's pretax dollars rather than after-tax income.

Question 59

A cafeteria plan,also known as a flexible benefit plan,is an employer-sponsored plan that gives the employee a choice of selecting either cash or one or more qualifying nontaxable benefits.

Question 60

Compound interest is the calculation of interest on interest as well as on the original investment.

Question 61

You can save money on your cost of premiums for your employer-based health care plan by selecting a high-deductible health plan (HDHP).

Question 62

401(k),403(b) and 457 plans are example of tax-sheltered retirement plans offered by employers.

Question 63

Fee-based financial planners/brokers charge up-front fees for providing services and charge commissions on any securities trades or insurance purchases that they conduct on your behalf.

Question 64

Retirement planning is a process that should begin three to five years before retirement.

Question 65

Premiums paid by a worker for disability and long-term care insurance are often more expensive when purchased through one's employer.

Question 66

By law,employers are not permitted to "match" all or part of their employees' contributions,even if they wish to encourage saving for retirement.

Question 67

The amount you pay to purchase a health care plan is called the deductible.

Question 68

Interest,dividends,and capital gains from investments in tax-sheltered retirement plans are tax-free.

Question 69

An advantage of an employer-sponsored tax-sheltered retirement plan is the tax-deferred growth of contributions and earnings.

Question 70

You would want your financial planner to provide you with an investment policy statement that details your investment philosophy,your financial situation,and the risks you are willing to take,as well as what the advisor will do for you.

Question 71

When faced with an unexpected major expense,you should consider withdrawing money from your retirement plan.

Question 72

The tax advantage of a flexible spending account (FSA) occurs because the deducted amounts of salary avoid federal income tax,Social Security taxes,and,in most states,state income taxes,thereby allowing selected personal expenses to be paid with pretax income.

Question 73

The study of personal finance involves how people _____ their financial resources.

A)spend
B)save
C)invest
D)All of these.

Question 74

By law,all financial planners must be Certified Financial Planners (CFPs).

Question 75

A financial planner who adheres to a fiduciary standard must always act in the best interest of the client regardless of how it might affect the advisor.

Question 76

A commission-only financial planner/broker charges an up-front fee for providing services.

Question 77

According to Internal Revenue Service (IRS) regulations,unused contributions to a flexible spending account are forfeited and are not returned to the employee-a condition called the "use it or lose it" rule.

Question 78

The limits on contributions to an HSA savings account are $3,300 per year for individuals and $6,150 for families.

Question 79

Funds in a dependent care FSA account may be used to pay for the care of a dependent as long as he or she is younger than age 18.

Question 80

Health savings accounts (HSAs) are intended for people who elect a high-deductible health care plan