Question 1

Inflation is likely to result from:
A)lower demand by consumers.
B)increased production by business.
C)lower interest rates.
D)increased demand by consumers without increased supply.
E)an increase in the supply of a product.

Accepted Answer

Inflation often occurs when there is increased demand by consumers without a corresponding increase in supply, leading to higher prices.

Question 2

Reduced spending causes unemployment from staff reduction.

Accepted Answer

Reduced spending can lead to lower demand for goods and services, which may cause businesses to reduce their workforce to cut costs, leading to unemployment.

Question 3

Opportunity costs may be viewed only in terms of financial resources.

Accepted Answer

Opportunity costs consider not only financial resources but also time, labor, and alternative uses of resources or opportunities foregone.

Question 4

Inflation reduces the buying power of the dollar.

Accepted Answer

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. As inflation increases, each dollar you own buys a smaller percentage of a good or service.

Question 5

Economics is the study of using money to achieve financial goals.

Accepted Answer

Economics is the study of how individuals, businesses, governments, and societies make choices about ways to allocate scarce resources.

Question 6

Increased demand for a product or service will usually result in lower prices for the item.

Accepted Answer

Increased demand for a product or service, without a corresponding increase in supply, typically results in higher prices for the item due to the principles of supply and demand.

Question 7

Higher consumer prices are likely to be accompanied by:
A)lower union wages.
B)lower interest rates.
C)lower production costs.
D)higher interest rates.
E)higher exports.

Accepted Answer

Higher consumer prices often lead to higher interest rates as central banks may raise rates to control inflation.

Question 8

Who is most likely to benefit from inflation?
A)Retired people
B)Lenders
C)Borrowers
D)Low-income consumers
E)Government

Accepted Answer

Borrowers benefit from inflation because they repay their loans with money that is worth less than when they borrowed it, effectively reducing the real value of their debt.

Question 9

Present value is often referred to as compounding.

Accepted Answer

Present value is actually referred to as discounting, which is the process of determining the value of a future cash flow in today's dollars. Compounding, on the other hand, is the process of calculating the future value of a present amount.

Question 10

Gross Domestic Product (GDP) measures the total value of goods and services produced within a country's borders,excluding items produced with foreign resources.

Accepted Answer

GDP measures the total value of all goods and services produced within a country's borders, including those produced with both domestic and foreign resources, as long as the production occurs within the country's borders.

Question 11

Time value of money refers to changes in consumer spending when inflation occurs.

Accepted Answer

Time value of money refers to the concept that a sum of money is worth more now than the same sum will be in the future due to its potential earning capacity. This principle underlies the concept of interest and investment growth over time, rather than changes in consumer spending due to inflation.

Question 12

Interest on savings is calculated by multiplying the principal amount times the opportunity cost times the annual interest rate.

Accepted Answer

Interest on savings is typically calculated by multiplying the principal amount by the annual interest rate, and sometimes considering the compounding period, not by multiplying with the opportunity cost. Opportunity cost refers to the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.

Question 13

The main goal of personal financial planning is managing your money to:
A)save and invest for future needs.
B)reduce a person's tax liability.
C)achieve personal economic satisfaction.
D)spend to achieve financial objectives.
E)save,spend,and borrow based on current needs.

Accepted Answer

The main goal of personal financial planning is to achieve personal economic satisfaction by effectively managing money to meet individual financial goals and needs.

Question 14

Trade balance is defined as the difference between a country's exports and its imports.

Accepted Answer

Trade balance is indeed defined as the difference between the value of a country's exports and the value of its imports. If exports exceed imports, it's called a trade surplus; if imports exceed exports, it's a trade deficit.

Question 15

Lenders benefit more than borrowers in times of high inflation.

Accepted Answer

During high inflation, the value of money decreases over time, meaning borrowers can repay their loans with money that is worth less than when they originally borrowed it, potentially benefiting more than lenders who receive less valuable money back.

Question 16

Developing and using a budget is part of the "obtaining" component of financial planning.

Accepted Answer

Developing and using a budget is part of the "planning" component of financial planning, as it involves setting financial goals and determining how to reach them.

Question 17

Planning to buy a car is an example of an intangible-purchase goal.

Accepted Answer

Buying a car is an example of a tangible-purchase goal because it involves acquiring a physical item that you can see, touch, and use.

Question 18

Opportunity costs refer to what a person gives up when making a choice.

Accepted Answer

Opportunity cost is the benefit that is missed or given up when an investor, individual, or business chooses one alternative over another.

Question 19

Personal opportunity costs refer to time,effort,and health that are given up when a decision is made.

Accepted Answer

Personal opportunity costs involve the sacrifices of time, effort, and health that occur as a result of making a particular choice, reflecting the foregone benefits that could have been enjoyed had a different decision been made.

Question 20

A financial plan is another name for a budget.

Accepted Answer

A financial plan is a comprehensive overview of an individual's current financial situation and long-term monetary goals, including strategies for achieving those goals, while a budget is a plan for short-term income and expenditures.

Quiz 1: Personal Finance Basics and the Time Value of Money

Inflation is likely to result from: