Financial Planning Process: Exam Study Guide with True/False Questions, Exams of Financial Management

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Chapter 1:Understanding the Financial

Planning Process:

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TRUE/FALSE

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

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

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.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

3. A good financial plan completed when one is in their 30s will typically last a lifetime.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis

4. Financial planning is a continuing, life-long process.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

5. Financial planning can improve your standard of living.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

6. Current consumption is inversely related to saving for the future.

ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis

7. About 20% of Americans say retirement planning is their most pressing financial concern.

ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

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ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

9. Defining financial goals is an important first step in personal financial planning process.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

10. Two persons with equal average propensities to consume will not necessarily have equal standards of living because of differences in income.

ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Evaluation

11. The need for financial planning declines as your income increases.

ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis

12. Current consumption effects future consumption.

ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis

13. A person who has $2,000 monthly income and spends $1,800 monthly has an average propensity to consume of 90%.

ANS: T PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Evaluation

14. A person making $35,000 and spending $30,800 has an average propensity to consume of 80%.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Evaluation

15. Most families find it difficult to discuss money matters.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

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16. Average propensity to consume refers to how much of your money you plan to save in your financial plan.

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24. Utility refers to the amount of satisfaction a person gets from buying certain items.

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ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

25. A successful financial plan will be based on a person's goals.

ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

26. Your personal value system will shape your attitude toward money and wealth accumulation.

ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

27. It is possible to draw up one financial plan that will work for most people.

ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

28. Financial planning is a dynamic process.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

29. The first step in the financial planning process is to develop financial plans and strategies to achieve goals.

ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

30. Money can be an emotional factor that may affect a person's financial plans.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

31. Long-term goals are typically for periods of over 6 years.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

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NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application

33. Short-term goals include things one wants to achieve in a year or less.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

34. Debt is another word for liability.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application

35. Insurance provides a way to make money on unfortunate events.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis

36. Employee benefits can typically be transferred to a new job when one changes employers.

ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

37. Your house is an example of a tangible asset.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application

38. For most people working in large firms, employee benefits are an important part of their financial planning.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application

39. A personal computer can be very useful in assisting one with their financial planning.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis

40. A financial goal that would be important in all stages of the life cycle is creating and maintaining an

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emergency fund.

ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-

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48. Inflation means price levels have declined.

ANS: F PTS: 1 DIF: Easy OBJ: LO: 1-

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NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

49. The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time.

ANS: F PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

50. Typically, higher levels of education are rewarded with higher income over the lifetime.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

51. Cities with higher costs of living also experience higher rates of inflation.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

52. Accumulating wealth for later years is called estate planning.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

53. High interest rates after the financial crisis of 2008-2009 reflect the Federal Reserve’s efforts to tighten, or reduce, the money supply.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking KEY: Bloom's: Knowledge

54. The government employs monetary and fiscal policy to ensure the economy always remains stable.

ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking KEY: Bloom's: Analysis

55. A strong economy leads to higher levels of employment.

ANS: T PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking KEY: Bloom's: Analysis

56. An economic contraction usually begins after a trough is reached.

ANS: F PTS: 1 DIF: Easy OBJ: LO: 1-

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ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking KEY: Bloom's: Synthesis

MULTIPLE CHOICE

1. Personal financial management is important because it a. controls inflation. b. limits consumption. c. uses money as an end. d. makes personal financial goals easier to achieve. e. lessens economic differences among individuals.

ANS: D PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Analysis

2. Financial planning can help us to a. control inflation. b. spend wisely. c. control unemployment rates. d. a and b. e. a, b, and c.

ANS: B PTS: 1 DIF: Easy OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

3. 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.

ANS: D PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

4. The term most closely associated with quality of life is a. wealth. b. consumption. c. education. d. standard of living. e. money.

ANS: D PTS: 1 DIF: Easy OBJ: LO: 1-

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NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application

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c. Buy a $125,000 house in 6 years d. Purchase a $40,000 boat e. Join the country club when retired in 20 years

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ANS: A PTS: 1 DIF: Challenging OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Application

10. Generally, as income rises, the average propensity to consume a. stabilizes. b. drops to zero. c. increases. d. becomes erratic. e. decreases.

ANS: E PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension

11. 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.

ANS: B PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Synthesis

12. Money is a. the reason for all transactions. b. a medium of exchange. c. the purpose of our economy. d. a medium of consumption. e. a measure of propensity to consume.

ANS: B PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Knowledge

13. Family financial goals should be a. very general in nature. b. realistically attainable. c. individually determined. d. set once for a lifetime. e. reserved for retirement planning.

ANS: B PTS: 1 DIF: Moderate OBJ: LO: 1- NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates KEY: Bloom's: Comprehension