Deck 1: Understanding the Financial Process

Question 1

Accumulating wealth for later years is called estate planning.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

The need for financial planning declines as your income increases.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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.

Question 9

Tax plans are closely tied to investment plans.

Question 10

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

Question 11

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

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.

Question 13

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

Question 14

Financial planning can improve your standard of living.

Question 15

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

Question 16

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

Question 17

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

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.

Question 19

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

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.

Question 21

Fee-only financial planners charge commission for the products they sell.

Question 22

Retirement planning includes taking advantage of and managing employer-sponsored benefits.

Question 23

The average propensity to consume refers to:

A)the dollars of income spent on luxury goods.
B)the dollars of income saved by an individual.
C)expenditures on the basic necessities of life.
D)the percentage of income spent for current consumption.
E)the fact that people with higher propensity to consume earn lower income.

Question 24

The decisions you make in career planning are independent of the decisions you make in financial planning.

Question 25

Your purchase, saving, investment, and retirement plans and decisions are not influenced by the present state of the economy.

Question 26

Marital status affects the income level of individuals.

Question 27

Becky graduated with a master's degree in personal financial planning. After working for 2 years in a small financial planning firm, Becky earns $85,000 annually and saves $5,000 a year after spending on her current needs. What is her average propensity to consume?

A)5 percent
B)25 percent
C)60 percent
D)88 percent
E)94 percent

Question 28

Recessions and financial crises will always result in job loss.

Question 29

An individual's quality of life is closely tied to his or her:

A)political orientation.
B)charitable contributions.
C)pollution control efforts.
D)standard of living.
E)educational qualifications.

Question 30

The federal government delegates its regulation of economic activity function to businesses and consumers.

Question 31

Personal financial planning is important because it:

A)controls inflation.
B)limits consumption.
C)reduces social disparity.
D)results in an improved standard of living.
E)reduces economic differences among individuals.

Question 32

Financial planning helps us:

A)control inflation.
B)have flexibility to handle job loss.
C)control unemployment rates.
D)obtain a Social Security number.
E)decrease national debt.

Question 33

Living costs are constant throughout the country.

Question 34

Setting long- and short-term career goals helps in career planning.

Question 35

Financial planning takes place in a dynamic economic environment created by the actions of the government, business, and consumers.

Question 36

Commission-based financial planners charge fees for the financial products they sell.

Question 37

Career plans should not be changed after long- and short-term career goals are set.

Question 38

Geographic factors affect your earning power.

Question 39

Which of the following is a reason for a decrease in the average propensity to consume with an increase in income?

A)The amount of savings decreases, and the consumption of necessities increases.
B)The expenditure on luxury goods increases, and the amount of savings decreases.
C)The expenditure on luxury goods represents only a small portion of income.
D)The amount of savings represents only a small portion of income.
E)The cost of necessities represents only a small portion of income.

Question 40

A key determinant of an individual's quality of life is his or her:

A)tax bill.
B)financial goal.
C)wealth.
D)motivation.
E)growth potential.

Question 41

Tax planning is most commonly done to:

A)determine the tax penalty.
B)evade taxes.
C)minimize taxes.
D)pay taxes the person considers to be fair.
E)learn the tax code.

Question 42

Which of the following financial goals is most useful for developing a financial plan?

A)Make a $12,000 down payment on an automobile in 4 years.
B)Retire with a comfortable lifestyle in 25 years.
C)Buy a $125,000 house.
D)Purchase a $40,000 boat.
E)Join the county club on retirement in 20 years.

Question 43

_____ is equal to the net total value of all the items that an individual owns.

A)Wealth
B)Propensity to consume
C)Consumer price index
D)Purchasing power
E)Credit debt

Question 44

Managing health and disability insurance is an important part of _____ planning.

A)asset acquisition
B)tax
C)retirement
D)estate
E)employee benefit

Question 45

Which of the following is one of the most emotional issues in any relationship, including that with a partner, parents, or children?

A)Career choices
B)Hobbies
C)Friends
D)Money
E)Retirement planning

Question 46

_____ is an important part of the conflict resolution process when there are disputes relating to money matters in families.

A)Life cycle analysis
B)Personality development
C)Financial planning
D)Personal counseling
E)Stress management

Question 47

The best way for a family to handle financial decisions is to:

A)ensure that only one person in the family makes financial decisions.
B)communicate consistently about money matters with family members.
C)ensure that individuals do not interfere in other family members' financial matters.
D)use a third party, who is not a part of the family, to set financial goals.
E)maintain confidentiality regarding the reasons behind specific decisions.

Question 48

Which of the following statements about money and relationships is true?

A)It is highly possible to change a partner's financial style.
B)One of the most important aspects of a marriage is financial compatibility.
C)Money does not cause emotional issues in any relationship.
D)The best way to resolve a money dispute is to avoid such a discussion.
E)Financial planning does not help in resolving conflicts related to money.

Question 49

When setting financial goals, you should typically start by setting:

A)short-term goals.
B)intermediate goals.
C)long-term goals.
D)goals that are not time-bound.
E)goals that are unrealistic.

Question 50

Employee benefits may include all of the following EXCEPT:

A)asset purchases.
B)life insurance.
C)child-care assistance programs.
D)pension payments.
E)subsidized food services.

Question 51

Martha is 60 and has a very high net worth. Her most pressing financial concern is probably:

A)asset acquisition planning.
B)liability planning.
C)estate planning.
D)insurance planning.
E)savings planning.

Question 52

Ideally, retirement planning should begin:

A)during the year before retirement.
B)when the last child has left home.
C)as soon as the mortgage is paid off.
D)when you get married.
E)as soon as you start earning.

Question 53

Financial planning for young people focuses first on:

A)career.
B)insurance.
C)investment.
D)taxes.
E)retirement.

Question 54

The last step in the financial planning process is to:

A)develop financial plans and strategies to achieve goals.
B)use financial statements to evaluate results of plans and budgets, taking corrective action as required.
C)implement financial plans and strategies.
D)redefine goals and revise plans and strategies as personal circumstances change.
E)periodically develop and implement budgets to monitor and control progress toward goals.

Question 55

Estate planning involves:

A)considering how your wealth can be most effectively passed on to your heirs.
B)determining the income you need to maintain.
C)the dissolution of all privately held corporations.
D)the valuation and auctioning of your valuables by hiring a professional tax planner.
E)planning for retirement.

Question 56

Stocks, bonds, and mutual funds are _____ assets.

A)physical
B)earning
C)fixed
D)tangible
E)real

Question 57

Which of the following statements about setting long-term goals is true?

A)The goals should be very ambitious.
B)The goals should be realistic.
C)The goals should be attained in 6 months to a year.
D)The goals should be easy to meet.
E)The goals should be set and remain unchanged.

Question 58

Professional financial planners:

A)provide services on a fee or commission basis.
B)provide services to wealthy investors only.
C)set the financial goals of retired investors.
D)make financial decisions for investors.
E)are most effective during retirement years.

Question 59

Financial plans include setting goal dates, which are:

A)dates in the future when the goals are expected to be achieved.
B)dates in the future when the goals will be compared with other goals that have already been achieved.
C)dates in the past when the goals were revised and redefined.
D)dates in the past when the goals were set.
E)dates in the future when the goals will be discussed with family members.

Question 60

Which of the following age groups tends to have the highest income?

A)18-24
B)25-34
C)35-44
D)45-64
E)65 and older

Question 61

The three key groups in the economic environment are:

A)government, regulators, and business.
B)government, consultants, and business.
C)consumers, economists, and business.
D)consumers, business, and managers.
E)government, consumers, and business.

Question 62

Ben invests $10,000 at a rate of interest of 5 percent for 40 years. Which of the following statements about the return on the investment is true?

A)Ben will receive more money at the end of 30 years compared to the money received at the end of 40 years.
B)Ben will receive more money at a 3 percent rate of interest instead of the existing rate.
C)Ben will receive interest of $5,000 at the end of 10 years.
D)Ben will receive no interest on his investment at the end of the investment period.
E)Ben will receive a significant amount at the end of the investment period, due to the feature of compounding.

Question 63

Which of the following practices helps an individual survive in a financial crisis?

A)Spending more than his or her earnings to maintain a good lifestyle
B)Investing small amounts regularly to achieve long-term financial goals
C)Establishing an emergency fund with 6 months' worth of income
D)Developing financial plans only after reaching the highest tax brackets
E)Planning tax without considering tax shelters

Question 64

The stage in which the economy hits a peak is called:

A)expansion.
B)contraction.
C)stagnation.
D)recession.
E)depression.

Question 65

Which of the following statements is true about Andy if the inflation rate is increasing every year by 1 percent and there is no growth in his salary?

A)Andy can afford to buy more luxury items as prices go down.
B)Andy's purchasing power will decrease.
C)Andy's employment opportunities will increase.
D)The lack of growth in Andy's salary will increase the average inflation rate .
E)Andy's cost of borrowing will be reduced.

Question 66

Which of the following statements about businesses is true?

A)Businesses provide goods and services and receive payment in money.
B)Businesses frame rules and regulations to maintain the law and order in a country.
C)Businesses determine the kinds of goods and services that a government will use.
D)Businesses do not interact with other players in the economy.
E)Businesses are seldom affected by economic cycles.

Question 67

Which of the following practices will help in dealing with unexpected negative financial shocks?

A)Purchasing low-utility products
B)Accumulating debt
C)Acquiring assets with low financial value
D)Saving money regularly for emergency funds
E)Planning for retirement

Question 68

Which of the following will legally reduce an investor's tax liability?

A)Tax evasion
B)Tax shelter
C)Tax penalty
D)Tax accounting
E)Tax portfolio

Question 69

Which of the following statements about investments is true?

A)As income increases, the need for investment planning decreases.
B)Keeping money idle is a form of investment.
C)Higher returns on investment will lead to the accumulation of less wealth.
D)Investment is measured by the amount of debt incurred.
E)The length of time for which money is invested is important.

Question 70

In addition to discussing your financial goals with your partner, you must allocate responsibility for _____ tasks and decisions.

A)skill management
B)stress management
C)household management
D)money management
E)business cycle management

Question 71

A strong economy leads to:

A)a low gross domestic product.
B)high tax percentages.
C)high employment opportunities.
D)low tax penalty rates.
E)a low value of retirement accounts.

Question 72

The government places constraints on the personal financial environment by the use of:

A)leverage policy.
B)taxation.
C)competition.
D)budgetary deficits.
E)the free-enterprise system.

Question 73

An economy experiences _____ after a peak.

A)a convolution
B)an expansion
C)a contraction
D)recovery
E)prosperity

Question 74

_____ is something we owe, which is measured by the amount of debt we incur.

A)An asset
B)An estate
C)A liability
D)Insurance
E)A goal

Question 75

Which of the following statements about the effects of an economic recession is true?

A)An increase in the standard of living
B)A decrease in unemployment
C)An increase in the expenditure on luxury goods
D)A decrease in the value of retirement accounts
E)An increase in the value of insurance purchased

Question 76

The amount of goods and services each dollar buys at a given point in time is called:

A)inflation.
B)the consumer price index.
C)the purchasing power.
D)the gross domestic product.
E)the opportunity cost.

Question 77

The consumer is:

A)a member of the business group.
B)the central player in the financial planning environment.
C)an important force in the government.
D)an advocacy group that fights corruption in the government.
E)relatively unimportant to the business or the government.

Question 78

The financial planning process helps in:

A)increasing assets.
B)increasing debts.
C)reducing utility.
D)reducing financial flexibility.
E)increasing financial risk.

Question 79

Which of the following is included in employee benefits packages?

A)Career plans
B)Retirement plans
C)Tax deferment plans
D)Personal asset plans
E)Bankruptcy recovery plans

Question 80

Inflation refers to:

A)increasing prices.
B)declining population.
C)increasing tax deferment.
D)increasing stock index.
E)decreasing birth rate.