Chapter 1—Understanding the Financial Planning Process
75. Sam and Lele are in their late 20s with 3 young children. Their most important financial planning concerns would
probably include all of the following except
a. asset acquisition planning.
b. liability and insurance planning.
c. retirement and estate planning.
d. savings and investment planning.
e. employee benefit planning.
76. Employee benefits may include
a. retirement plans.
b. health insurance.
c. employee discounts.
d. tuition reimbursements.
e. all of these.
77. The primary reason people use financial advisors is
a. unhappiness with results of managing their own finances.
b. saving for their children’s college education.
c. tax issues.
d. estate and inheritance planning.
e. retirement needs.
Chapter 1—Understanding the Financial Planning Process
78. Tax planning is most commonly done to
a. reduce debt balances.
b. change income patterns to avoid taxes.
c. minimize taxes.
d. pay extra taxes.
e. learn the tax code.
79. Investments are distinguished from savings on the basis of
a. length of time held.
b. initial dollar outlay.
c. depreciation.
d. voting rights.
e. level of risk and expected return.
80. Estate planning involves
a. considering how your wealth can be most effectively passed on to heirs.
b. payment of all back taxes.
c. dissolution of all privately held corporations.
d. valuation and auctioning of your valuables.
e. planning retirement.
Chapter 1—Understanding the Financial Planning Process
81. While you are still working, you should be managing your finances for retirement planning. Which of the following is
not a goal of your retirement planning?
a. Maintaining your standard of living
b. Effectively passing wealth on to heirs
c. A vacation home or boat
d. Travel
82. The three key groups in the economic environment are
a. government, regulation, and business.
b. government, consultants, and business.
c. consumers, economists, and business.
d. consumers, business, and managers.
e. government, consumers, and business.
83. Government places controls on the personal financial environment by use of
a. taxation and fiscal policy.
b. taxation and regulation.
c. taxation and competition.
d. regulation and competition.
e. regulation and fiscal policy.
Chapter 1—Understanding the Financial Planning Process
84. Businesses provide
a. stores.
b. money payments.
c. land and capital.
d. labor.
e. goods and services.
85. The individual consumer is
a. a member of the business group.
b. the party around which the personal financial environment is centered.
c. an important force in government.
d. an advocacy group.
e. relatively unimportant to business or government.
86. The four stages of an economic cycle would not include
a. trough.
b. expansion.
c. contraction.
d. peak.
e. stagnation.
Chapter 1—Understanding the Financial Planning Process
87. Inflation refers to
a. rising prices.
b. declining interest rates.
c. the opposite of wealth.
d. the opposite of stagflation.
e. declining prices.
88. As the rate of inflation increases,
a. the cost of living goes down.
b. interest rates decrease.
c. paychecks decrease.
d. retirement plans have more difficulty meeting their goals.
e. purchasing power of a dollar increases.
89. Federal income taxes are
a. regressive.
b. flat.
c. progressive.
d. none of these.
90. Which of the following is a measure of inflation based on changes in the cost of a market basket of consumer goods
and services?
a. Inflation
b. Consumer price index (CPI)
Chapter 1—Understanding the Financial Planning Process
c. Purchasing power
d. None of these
91. Your income is directly related to
a. your geographic location.
b. your age.
c. your education.
d. all of these.
e. none of these.
92. Typically people with the lowest incomes tend to be
a. educated.
b. very old.
c. very young or very old.
d. middle aged.
e. childless.
93. ____ tends to increase and then decrease over the life cycle.
a. Debt
b. Income
c. Emergency funds
d. a and b
e. a, b, and c
Chapter 1—Understanding the Financial Planning Process
94. Financial goals should be
a. specific.
b. attainable.
c. prioritized.
d. all of these.
e. none of these.
95. 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. none of these.
96. A personal computer could not be used to
a. prepare detailed budgets.
b. analyze investment possibilities.
c. store and retrieve financial information efficiently.
d. make financial decisions.
e. keep insurance coverage inventories.
Chapter 1—Understanding the Financial Planning Process
97. Which of the following is NOT a common misconception about financial planning?
a. A professional financial planner is an unnecessary expense.
b. A little credit card debt is fine.
c. You don’t need a budget if you have a general idea of what you earn and spend.
d. Retirement is a lifetime away.
e. A second income doesn’t add as much as expected to the bottom line.
98. Professional financial planners
a. help by establishing personal financial goals.
b. are only for wealthy investors.
c. are skilled at offering simple solutions to complex financial problems.
d. make financial decisions for investors.
e. are best utilized during retirement years.
99. A ____ is a designation earned by financial planners after completing required courses of study.
a. MBA
b. LUTCF
c. CFP
d. E.A.
e. CLU
Chapter 1—Understanding the Financial Planning Process
100. Low interest rates after 2008 and 2009 reflect the Federal Reserve’s desire to
a. stimulate economic growth.
b. reduce unemployment.
c. reduce inflation.
d. a and b
e. a, b, and c
101. What policies can the government utilize to help stabilize the economy?
a. Price stabilization policy
b. Monetary policy
c. Fiscal policy
d. b and c
e. a, b, and c
102. A strong economy leads to
a. lower inflation.
b. lower interest rates.
c. higher employment.
d. lower productivity.
e. higher unemployment.
103. An economy will usually go into a(n) _________ after a peak.
a. convolution
b. expansion
Chapter 1—Understanding the Financial Planning Process
c. contraction
d. recession
e. depression
104. The financial crisis of 2008 and 2009 is best characterized as a
a. recession.
b. depression.
c. downturn.
d. business trough.
e. meltdown.
INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first
item, B for the second item, and C if neither item will correctly complete the statement.
105. The best way to achieve your financial objectives is to [save every extra dollar you can | develop a sound financial
plan].
106. Financial planning [does | does not] guarantee a sound financial future.
Chapter 1—Understanding the Financial Planning Process
107. [Putting money into a retirement fund | Buying a car] would be an example of current consumption.
108. [Vacations | Education] would be considered a necessity of life.
109. The average [self employed | retired] household has higher income.
110. The average American has [$59,000 | $81,000] in retirement accounts.
111. About [50% | 75%] of married adults share all their money with their mate.
Chapter 1—Understanding the Financial Planning Process
112. The net total value of all the items an individual owns is known as [wealth | assets].
113. [Disney stock | Your car] would be considered a financial asset.
114. [A savings account | Your car] would be considered a tangible asset.
115. [Money | Inflation] is the common denominator for gauging all financial transactions.
Chapter 1—Understanding the Financial Planning Process
116. [Inflation | Consumer Price Index] is the amount of goods and services each dollar buys at a given point in time.
117. [Utility | Propensity to consume] refers to the satisfaction you receive from buying certain items.
118. An adequate emergency fund should last [2-3 months | 6-9 months].
119. Having numerous credit cards can [improve | hurt] your credit score.
120. “1 want to accumulate a comfortable retirement fund” [would | would not] be a specific financial goal.
Chapter 1—Understanding the Financial Planning Process
121. Money can be withdrawn from tax-deferred retirement accounts without penalty beginning at age [59 1/2 | 62 1/2].
122. Your level of formal education is a [controllable | noncontrollable] factor that has a considerable effect on your
income.
123. For most people, debts [increase constantly | increase and then decrease] during their lifetimes.
124. When investing, you should try to time the market [to buy when it’s low | to sell when it’s high].
Chapter 1—Understanding the Financial Planning Process
125. The two principal constraints which government places upon us are regulations and [tariffs | taxes].
126. The Consumer Price Index is a measure of [unemployment | inflation].
127. Two key indicators of economic activity in the United States are production levels and [employment levels | cost of
living].
128. The federal government’s [fiscal | monetary] policy is used to stimulate or moderate economic growth.
129. [Tax | Liability and insurance] planning is introduced early in the life cycle.
Chapter 1—Understanding the Financial Planning Process
130. During the expansion phase of the business cycle, the unemployment rate will [increase | decrease].
131. As the rate of inflation increases, the purchasing power of your dollars will [increase | decrease].
132. The primary determinant of your standard of living is your [wealth | propensity to consume].
133. The average American starting a career today can expect to have at least [seven | ten] jobs during his/her lifetime..
Chapter 1—Understanding the Financial Planning Process
134. After reaching adulthood, your financial goals will [stabilize | continue to change].
135. For most people, employee benefits are of [little | major] importance.
136. Typically, your salary will be [higher | lower] if you live in a large metropolitan area rather than a small town or rural
area.
137. [GDP | CPI] is the total of all goods and services produced by workers located within the country.
138. The average income of household heads increases until age [55 | 65] then income starts decreasing.
Chapter 1—Understanding the Financial Planning Process
139. The Federal Reserve’s actions after the financial crisis of 2008 and 2009 resulted in [reduced interest rates | higher
interest rates].
140. The government employs monetary and fiscal policy to help foster a [fast growing economy | no growth economy].
141. A stronger economy leads to [higher employment | lower employment].
142. Following an economic trough, the economy will often enter a period of [expansion | contraction].
143. The financial crisis of 2008 and 2009 is best characterized as a [recession | depression].
Chapter 1—Understanding the Financial Planning Process