Chapter 1—Understanding the Financial Planning Process
1. Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or family.
a.
True
b.
False
True
Easy
2. Your average propensity to consume is the percentage of each dollar of income, on the average, that is spent for current
needs rather than savings.
a.
True
b.
False
True
Easy
3. A good financial plan completed when one is in their 30s will typically last a lifetime.
a.
True
b.
False
False
Challenging
4. Financial planning is a continuing, lifelong process.
a.
True
b.
False
True
Chapter 1—Understanding the Financial Planning Process
5. The heart of sound financial planning is improved standard of living.
a.
True
b.
False
True
Easy
6. Nearly 35% of Americans say retirement planning is their most pressing financial concern.
a.
True
b.
False
True
Moderate
7. The average American has less than $50,000 in savings.
a.
True
b.
False
False
Moderate
Easy
Chapter 1—Understanding the Financial Planning Process
8. The most effective way to achieve financial objectives is through financial planning.
a.
True
b.
False
True
Moderate
9. Defining financial goals is an important first step in the personal financial planning process.
a.
True
b.
False
True
Easy
10. Two persons with equal average propensities to consume will not necessarily have equal standards of living because
of differences in income.
a.
True
b.
False
True
Challenging
11. The need for financial planning declines as your income increases.
a.
True
b.
False
False
Chapter 1—Understanding the Financial Planning Process
12. Current consumption affects future consumption.
a.
True
b.
False
True
Challenging
13. A person who has $2,000 monthly income and spends $1,800 monthly has an average propensity to consume of 90%.
a.
True
b.
False
True
Challenging
14. A person making $35,000 and spending $30,800 has an average propensity to consume of 80%.
a.
True
b.
False
False
Challenging
Moderate
Chapter 1—Understanding the Financial Planning Process
15. Most families find it difficult to discuss money matters.
a.
True
b.
False
True
Easy
16. Average propensity to consume refers to how much of your money you plan to save in your financial plan.
a.
True
b.
False
False
Challenging
17. Tangible assets are earning assets that are held for the returns they promise.
a.
True
b.
False
False
Challenging
18. Financial assets are paper assets, such as savings accounts and securities.
a.
True
b.
False
Chapter 1—Understanding the Financial Planning Process
True
Moderate
19. Mutual funds are examples of financial assets.
a.
True
b.
False
True
Easy
20. One good way to save money is to purchase a new car every eight years to avoid high maintenance costs.
a.
True
b.
False
False
Moderate
21. Wealth can be defined as the total value of all the things you own.
a.
True
b.
False
True
Easy
Chapter 1—Understanding the Financial Planning Process
22. Wealthy people have a higher average propensity to consume.
a.
True
b.
False
False
Challenging
23. Financial assets include investments such as stocks and bonds.
a.
True
b.
False
True
Easy
24. Utility refers to the amount of satisfaction a person gets from buying certain items.
a.
True
b.
False
True
Easy
25. Personal financial planning involves translating financial goals into action plans.
a.
True
b.
False
Chapter 1—Understanding the Financial Planning Process
True
Easy
26. Your personal value system will shape your attitude toward money and wealth accumulation.
a.
True
b.
False
True
Moderate
27. The key input for a cash budget is long-term financial goals.
a.
True
b.
False
False
Moderate
28. Financial planning is a dynamic process.
a.
True
b.
False
True
Easy
Chapter 1—Understanding the Financial Planning Process
29. About 65% of Americans believe that money is freedom.
a.
True
b.
False
False
Moderate
30. By saving $3,000 a year, Manny should have enough to send his newborn son to college by the time his son turns 18.
a.
True
b.
False
False
Easy
31. Long-term goals are typically for periods of over 6 years.
a.
True
b.
False
True
Easy
32. Saving $3,000 for a large, flat-screen TV within the next 3 years is an example of a short-term goal.
a.
True
b.
False
Chapter 1—Understanding the Financial Planning Process
False
Easy
33. Effective financial plans are both economically and psychologically sound.
a.
True
b.
False
True
Easy
34. Eliza’s employer gives her a certain amount of money each year to spend on benefits of her choice. Eliza has a
cafeteria plan.
a.
True
b.
False
True
Moderate
35. Insurance provides a way to make money on unfortunate events.
a.
True
b.
False
False
Chapter 1—Understanding the Financial Planning Process
36. The length of time you keep your money invested is less important than the rate of return you earn on your
investments.
a.
True
b.
False
False
Moderate
37. Your house is an example of a tangible asset.
a.
True
b.
False
True
Easy
38. For most people working in large firms, employee benefits are an important part of their financial planning.
a.
True
b.
False
True
Easy
39. Over the long run, gaining an extra two percent on an investment makes little difference in earnings generated.
Chapter 1—Understanding the Financial Planning Process
a.
True
b.
False
False
Easy
40. A financial goal that would be important in all stages of the life cycle is creating and maintaining an emergency fund.
a.
True
b.
False
True
Moderate
41. Government controls consumers and businesses by regulation and taxation.
a.
True
b.
False
True
Moderate
42. Businesses are a key part of the circular flow of income that sustains our free enterprise system.
a.
True
b.
False
True
Moderate
Chapter 1—Understanding the Financial Planning Process
43. Consumer choices ultimately determine the kinds of goods and services businesses will provide.
a.
True
b.
False
True
Challenging
44. GDP refers to the total earnings of American workers during a year.
a.
True
b.
False
False
Moderate
45. Decreasing taxes stimulates the economy.
a.
True
b.
False
True
Moderate
46. Reducing the money supply stimulates the economy.
Chapter 1—Understanding the Financial Planning Process
a.
True
b.
False
False
Moderate
47. The longer you wait to begin retirement planning, the less you will likely have in your retirement fund.
a.
True
b.
False
True
Easy
48. Inflation means price levels have declined.
a.
True
b.
False
False
Easy
49. The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time.
a.
True
b.
False
False
Moderate
Chapter 1—Understanding the Financial Planning Process
50. Typically, higher levels of education are rewarded with higher income over the lifetime.
a.
True
b.
False
True
Easy
51. The median income of a person with a master’s degree is more than double that of a person with only a high school
diploma.
a.
True
b.
False
True
Moderate
52. Accumulating wealth for later years is called estate planning.
a.
True
b.
False
False
Challenging
Chapter 1—Understanding the Financial Planning Process
53. High interest rates after the financial crisis of 2008–2009 reflect the Federal Reserve’s efforts to tighten, or reduce, the
money supply.
a.
True
b.
False
False
Challenging
54. The government employs monetary and fiscal policy to ensure the level of economic activity always remains stable.
a.
True
b.
False
False
Challenging
55. Inflation generally has little effect on personal financial planning.
a.
True
b.
False
False
Easy
56. An economic contraction usually begins after a trough is reached.
a.
True
b.
False
False
Easy
Chapter 1—Understanding the Financial Planning Process
57. The financial crisis of 2008 and 2009 was the first depression the U.S. has experienced in 75 years.
a.
True
b.
False
False
Challenging
PFIN.BILL.17.1-4 – LO: 1-4
United States – BUSPROG: Reflective Thinking
United States – KS – DISC: Investments
Bloom’s: Analyzing
58. Personal financial management is important because it
a.
b.
c.
d.
e.
Moderate
PFIN.BILL.17.1-1 – LO: 1-1
United States – BUSPROG: Reflective Thinking
Bloom’s: Analyzing
59. Which of the following contributes to quality of life?
a.
House
b.
Clothing
c.
Education
d.
Music
e.
All of these
e
Easy
PFIN.BILL.17.1-1 – LO: 1-1
United States – BUSPROG: Reflective Thinking
United States – KS – DISC: Investments
Bloom’s: Understanding
60. The last step in the financial planning process is to
a.
develop financial plans and strategies to achieve goals.
Chapter 1—Understanding the Financial Planning Process
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.
Moderate
PFIN.BILL.17.1-2 – LO: 1-2
United States – BUSPROG: Reflective Thinking
Bloom’s: Remembering
61. Saving for a child’s education is an example of
a.
accumulating wealth.
b.
a tangible asset.
c.
estate planning.
d.
deferred spending.
e.
propensity to consume.
Moderate
PFIN.BILL.17.1-1 – LO: 1-1
United States – BUSPROG: Reflective Thinking
Bloom’s: Applying
62. A primary determinant of your quality of life is
a.
a tax bill.
b.
tangible property.
c.
wealth.
d.
motivation.
e.
income potential.
c
Challenging
PFIN.BILL.17.1-1 – LO: 1-1
United States – BUSPROG: Reflective Thinking
Bloom’s: Analyzing
Chapter 1—Understanding the Financial Planning Process
63. The average propensity to consume refers to the
a.
dollars of income spent for current consumption.
b.
percentage of income saved.
c.
expenditures for the minimum necessities of life.
d.
percentage of income spent for current consumption.
e.
fact that people with higher incomes spend more for the necessities of life.
Easy
PFIN.BILL.17.1-1 – LO: 1-1
United States – BUSPROG: Reflective Thinking
United States – KS – DISC: Investments
Bloom’s: Remembering
64. Becky graduated with a master’s degree in Personal Financial Planning. After working two years in a small financial
planning firm, Becky earns $60,000 annually and saves $10,000 a year. What is her average propensity to consume?
a.
16.7%
b.
25.5%
c.
75.7%
d.
83.3%
e.
95.5%
Challenging
PFIN.BILL.17.1-1 – LO: 1-1
United States – BUSPROG: Reflective Thinking
United States – KS – DISC: Investments
Bloom’s: Evaluating
65. Rob requests that a GPS system be added to his new care at an additional cost. The GPS system provides Rob
a.
propensity to consume.
b.
wealth.
c.
additional utility.
d.
a financial asset.
e.
none of these.
c
Moderate
PFIN.BILL.17.1-2 – LO: 1-2
United States – BUSPROG: Reflective Thinking
Chapter 1—Understanding the Financial Planning Process
66. Which of the following questions should you ask yourself when developing your financial goals?
a.
How important is money to me?
b.
Am I a risk taker?
c.
What do I like to buy?
d.
Does money make me feel secure?
e.
All of these
e
Easy
PFIN.BILL.17.1-2 – LO: 1-2
United States – BUSPROG: Reflective Thinking
United States – KS – DISC: Investments
Bloom’s: Applying
67. Generally, as income rises, the average propensity to consume
a.
stabilizes.
b.
drops to zero.
c.
increases.
d.
becomes erratic.
e.
decreases.
e
Moderate
PFIN.BILL.17.1-1 – LO: 1-1
United States – BUSPROG: Reflective Thinking
United States – KS – DISC: Investments
Bloom’s: Understanding
68. The amount of money we set aside for future consumption will be determined by
a.
our level of current wealth.
b.
how much we currently earn and spend.
c.
our education level.
d.
the current needs of our family.
e.
the cost of life’s necessities.
United States – KS – DISC: Investments
Bloom’s: Applying