Question 1

Accumulating wealth for later years is called estate planning.

Accepted Answer

Estate planning specifically refers to the preparation for the transfer of a person's wealth and assets after their death or incapacitation, not merely the accumulation of wealth for later years.

Question 2

Two persons with significantly different income can have equal average propensities to consume because of differences in their standards of living.

Accepted Answer

The average propensity to consume (APC) is calculated as the ratio of total consumption to total income. Two individuals with significantly different incomes can have the same APC if they adjust their consumption levels according to their income, reflecting their different standards of living.

Question 3

The need for financial planning declines as your income increases.

Accepted Answer

The need for financial planning actually increases as your income increases as there is typically more money at stake and more complex financial decisions to be made. High-income earners may have greater investments, assets, and tax implications to consider in their financial planning.

Question 4

You should limit your spending to no more than 20 percent more than what you earn.

Accepted Answer

This statement is not entirely accurate or applicable to everyone's financial situation. It is important to create a budget and prioritize spending based on individual needs and goals, rather than adhering strictly to a percentage limit. Additionally, some people may have high earning potential but also high expenses (such as medical bills or student loan payments) that make it difficult to limit spending to only 20 percent above their earnings.

Question 5

The support of philanthropic organizations is a material item that contributes to our quality of life.

Accepted Answer

Philanthropic support is considered a non-material item as it contributes to our quality of life through services, support, and donations, rather than through physical or material goods.

Question 6

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

Accepted Answer

Tangible assets are physical assets such as property, plant, and equipment, not necessarily held for the returns they promise but for their physical presence and utility in operations.

Question 7

Saving $400 for a large, flat-screen TV within the next 4 months is an example of a short-term goal.

Accepted Answer

A short-term goal typically has a timeframe of less than 1 year and usually involves saving for a specific purchase or expense, such as a large, flat-screen TV in this case. Therefore, saving $400 for a large, flat-screen TV within the next 4 months is an example of a short-term goal.

Question 8

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

Accepted Answer

Personal financial planning involves creating a roadmap to achieve financial goals and objectives through budgeting, saving, investing, and managing debt. It allows individuals to take control of their finances and make better financial decisions. Therefore, it is considered the most effective way to achieve financial objectives.

Question 9

Tax plans are closely tied to investment plans.

Accepted Answer

Tax plans can have a significant impact on investment plans, as tax policies can affect the after-tax return on investments and the overall cost of investing. Investors often consider tax implications when making investment decisions, and changes in tax laws or regulations can influence investment behavior.

Question 10

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

Accepted Answer

The earlier you start retirement planning and saving, the more time you have for your money to grow and accumulate compound interest. Waiting to start retirement planning can result in a smaller retirement fund due to missed opportunities to save and invest.

Question 11

For employees of large firms, managing employee benefits is an important part of financial planning.

Accepted Answer

Managing employee benefits, such as health insurance and retirement plans, can significantly impact an employee's financial well-being. This is especially true for employees of large firms, which often offer a range of benefits and opportunities for financial planning. Therefore, managing employee benefits is an important part of financial planning for these individuals.

Question 12

Mike's annual income is $45,000, and he spends $30,000 for current needs. Mike's average propensity to consume is 80 percent.

Accepted Answer

Mike's average propensity to consume (APC) is calculated as the ratio of consumption to income. In this case, it would be $30,000 / $45,000 = 0.6667 or 66.67%, not 80%.

Question 13

Most people tend to be more liberal about their expenditures during a recession or crisis.

Accepted Answer

During a recession or crisis, people tend to be more cautious and conservative with their spending, as they may be experiencing financial uncertainty or job insecurity.

Question 14

Financial planning can improve your standard of living.

Accepted Answer

Financial planning can help you manage your money effectively, save for the future, and make informed decisions about spending. This can ultimately lead to a better quality of life with more financial security and stability.

Question 15

Short-term planning should include creating and maintaining an emergency fund with at least 6 months' worth of income.

Accepted Answer

Having an emergency fund with at least 6 months' worth of income can help you be financially prepared for unexpected events such as job loss, medical emergencies, or unexpected expenses.

Question 16

The average propensity to consume is commonly viewed as a key determinant of standard of living.

Accepted Answer

The answer of The average propensity to consume is commonly...

Question 17

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

Accepted Answer

This is the correct definition of standard of living.

Question 18

It is very easy to change your partner's financial style, so there is no need for financial planning to resolve conflicts regarding money matters.

Accepted Answer

Changing a partner's financial style can be challenging as it often involves deep-seated habits and values. Effective communication and financial planning are essential for resolving conflicts regarding money matters.

Question 19

You should discuss your financial goals and attitudes toward money with your partner.

Accepted Answer

It is important to have open communication with your partner about finances in order to ensure financial compatibility and avoid potential conflicts. Discussing financial goals and attitudes towards money can help create a shared understanding and plan for managing money as a couple.

Question 20

When you get your first job, you should make a good financial plan that you can follow without making changes until you retire.

Accepted Answer

Although it is important to make a financial plan when starting your first job, it is unlikely that you will be able to stick to the same plan for the rest of your career. Your financial goals and circumstances may change over time, so it is important to review and adjust your plan as necessary.

Quiz 1: Understanding the Financial Process