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1. Understanding the Financial Process
Copyright Cengage Learning. Powered by Cognero.
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1. The average propensity to consume is commonly viewed as a key determinant of standard of living.
a. True
b. False
2. Financial planning can improve your standard of living.
a. True
b. False
3. Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or a family.
a. True
b. False
1. Understanding the Financial Process
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DATE MODIFIED: 9/13/2018 6:09 PM
4. The support of philanthropic organizations is a material item that contributes to our quality of life.
a. True
b. False
5. The most effective way to achieve financial objectives is through personal financial planning.
a. True
b. False
6. Two persons with significantly different income can have equal average propensities to consume because of differences
in their standards of living.
a. True
b. False
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7. Mike’s annual income is $45,000, and he spends $30,000 for current needs. Mike’s average propensity to consume is
80 percent.
a. True
b. False
8. Tangible assets are earning assets that are held for the returns they promise.
a. True
b. False
9. 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.
a. True
b. False
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10. The need for financial planning declines as your income increases.
a. True
b. False
11. When you get your first job, you should make a good financial plan that you can follow without making changes until
you retire.
a. True
b. False
12. Saving $400 for a large, flat-screen TV within the next 4 months is an example of a short-term goal.
a. True
b. False
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13. Short-term planning should include creating and maintaining an emergency fund with at least 6 months’ worth of
income.
a. True
b. False
14. You should discuss your financial goals and attitudes toward money with your partner.
a. True
b. False
15. For employees of large firms, managing employee benefits is an important part of financial planning.
a. True
b. False
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RATIONALE: Managing employee benefit plans and coordinating them with other financial plans is an important part of
16. Accumulating wealth for later years is called estate planning.
a. True
b. False
17. The longer you wait to begin retirement planning, the less you are likely to have in your retirement fund.
a. True
b. False
18. Tax plans are closely tied to investment plans.
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a. True
b. False
19. Most people tend to be more liberal about their expenditures during a recession or crisis.
a. True
b. False
20. You should limit your spending to no more than 20 percent more than what you earn.
a. True
b. False
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21. Commission-based financial planners charge fees for the financial products they sell.
a. True
b. False
22. Fee-only financial planners charge commission for the products they sell.
a. True
b. False
23. Retirement planning includes taking advantage of and managing employer-sponsored benefits.
a. True
b. False
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24. Recessions and financial crises will always result in job loss.
a. True
b. False
25. Financial planning takes place in a dynamic economic environment created by the actions of the government,
business, and consumers.
a. True
b. False
26. Your purchase, saving, investment, and retirement plans and decisions are not influenced by the present state of the
economy.
a. True
b. False
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27. The federal government delegates its regulation of economic activity function to businesses and consumers.
a. True
b. False
28. Living costs are constant throughout the country.
a. True
b. False
29. Geographic factors affect your earning power.
a. True
b. False
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30. Marital status affects the income level of individuals.
a. True
b. False
31. The decisions you make in career planning are independent of the decisions you make in financial planning.
a. True
b. False
32. Setting long- and short-term career goals helps in career planning.
a. True
b. False
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33. Career plans should not be changed after long- and short-term career goals are set.
a. True
b. False
34. 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.
35. Financial planning helps us:
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e. decrease national debt.
36. 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.
37. 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.
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38. 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.
39. 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
40. 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.
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41. _____ 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
42. Stocks, bonds, and mutual funds are _____ assets.
a. physical
b. earning
c. fixed
d. tangible
e. real
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43. 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.
44. 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.
45. 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.
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46. 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.
47. 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.
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48. 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
49. 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.
50. _____ 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
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e. Stress management
51. 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.
52. Financial planning for young people focuses first on:
a. career.
b. insurance.
c. investment.
d. taxes.
e. retirement.
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53. 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.
54. 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.
55. 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.
