Chapter 1—Understanding Personal Finance
TRUE/FALSE
1. The level of financial literacy is high among Americans today.
ANS: F
financial literacy is low among most Americans.
PTS: 1 DIF: easy REF: p. 4
2. People today face the challenge of saving, investing, and managing their own retirement funds.
ANS: T PTS: 1 DIF: moderate REF: p. 4
3. Personal finance is the study of personal and family resources considered important in achieving
financial success.
ANS: T PTS: 1 DIF: easy REF: p. 4
4. Financial success is marked by having high wealth.
ANS: F
financial success is the achievement of financial aspirations.
PTS: 1 DIF: moderate REF: p. 5
5. By saving and investing, people are much more likely to have funds available for future
consumption.
, ANS: T PTS: 1 DIF: easy REF: p. 5
6. One's standard of living comprises all his or her current consumption.
ANS: F
current consumption is one's level of living. Standard of living is what you aspire to achieve.
PTS: 1 DIF: moderate REF: p. 5
7. Your standard of living is where you would like to be and your level of living is where you
actually are.
ANS: T PTS: 1 DIF: easy REF: p. 5
8. You cannot build financial security or wealth unless you spend less than you earn.
ANS: T PTS: 1 DIF: moderate REF: p. 5
9. A business cycle is a pattern of economic activity that includes an expansion, peak, contraction,
and trough.
ANS: T PTS: 1 DIF: easy REF: p. 7
10. The preferred stage of the economic cycle is the contraction phase.
ANS: F
it is the expansion phase.
PTS: 1 DIF: easy REF: p. 7
,11. Since it is impossible to make precise forecasts about economic trends, indicators such as
inflation and interest rates can be ignored when planning your finances.
ANS: F
a reasoned and informed estimate of these indicators can and must be included
PTS: 1 DIF: moderate REF: p. 8
12. The typical U.S. recession is marked by an average economic decline of 4 percent.
ANS: F
the average decline has been 2 percent although the most recent has been higher illustrating its
severity.
PTS: 1 DIF: moderate REF: p. 7
13. The sum total of all economic activity is measured by the gross domestic product.
ANS: T PTS: 1 DIF: easy REF: p. 9
14. Procyclical economic indicators are those that predict a positive change in the economy.
ANS: F
procyclical indicators move in the same direction as the economy whether up or down
PTS: 1 DIF: moderate REF: p. 9
15. The index of leading economic indicators is a composite index that suggests the future direction
of the U.S. economy.
, ANS: T PTS: 1 DIF: easy REF: p. 10
16. The index of leading economic indicators includes eight components of growth.
ANS: F
it includes 10 components of growth.
PTS: 1 DIF: easy REF: p. 10
17. When the economy begins to show clear signs of a slowdown, it may be a good time to invest in
fixed-interest securities.
ANS: T PTS: 1 DIF: moderate REF: p. 13
18. Leading economic indicators are those that do the best job of measuring the state of the economy
at any point in time.
ANS: F
leading economic indicators help predict how the economy will do in the future.
PTS: 1 DIF: easy REF: p. 9
19. Inflation is defined as a steady rise in the general level of prices.
ANS: T PTS: 1 DIF: easy REF: p. 10
20. Deflation involves falling prices.
ANS: T PTS: 1 DIF: easy REF: p. 10
TRUE/FALSE
1. The level of financial literacy is high among Americans today.
ANS: F
financial literacy is low among most Americans.
PTS: 1 DIF: easy REF: p. 4
2. People today face the challenge of saving, investing, and managing their own retirement funds.
ANS: T PTS: 1 DIF: moderate REF: p. 4
3. Personal finance is the study of personal and family resources considered important in achieving
financial success.
ANS: T PTS: 1 DIF: easy REF: p. 4
4. Financial success is marked by having high wealth.
ANS: F
financial success is the achievement of financial aspirations.
PTS: 1 DIF: moderate REF: p. 5
5. By saving and investing, people are much more likely to have funds available for future
consumption.
, ANS: T PTS: 1 DIF: easy REF: p. 5
6. One's standard of living comprises all his or her current consumption.
ANS: F
current consumption is one's level of living. Standard of living is what you aspire to achieve.
PTS: 1 DIF: moderate REF: p. 5
7. Your standard of living is where you would like to be and your level of living is where you
actually are.
ANS: T PTS: 1 DIF: easy REF: p. 5
8. You cannot build financial security or wealth unless you spend less than you earn.
ANS: T PTS: 1 DIF: moderate REF: p. 5
9. A business cycle is a pattern of economic activity that includes an expansion, peak, contraction,
and trough.
ANS: T PTS: 1 DIF: easy REF: p. 7
10. The preferred stage of the economic cycle is the contraction phase.
ANS: F
it is the expansion phase.
PTS: 1 DIF: easy REF: p. 7
,11. Since it is impossible to make precise forecasts about economic trends, indicators such as
inflation and interest rates can be ignored when planning your finances.
ANS: F
a reasoned and informed estimate of these indicators can and must be included
PTS: 1 DIF: moderate REF: p. 8
12. The typical U.S. recession is marked by an average economic decline of 4 percent.
ANS: F
the average decline has been 2 percent although the most recent has been higher illustrating its
severity.
PTS: 1 DIF: moderate REF: p. 7
13. The sum total of all economic activity is measured by the gross domestic product.
ANS: T PTS: 1 DIF: easy REF: p. 9
14. Procyclical economic indicators are those that predict a positive change in the economy.
ANS: F
procyclical indicators move in the same direction as the economy whether up or down
PTS: 1 DIF: moderate REF: p. 9
15. The index of leading economic indicators is a composite index that suggests the future direction
of the U.S. economy.
, ANS: T PTS: 1 DIF: easy REF: p. 10
16. The index of leading economic indicators includes eight components of growth.
ANS: F
it includes 10 components of growth.
PTS: 1 DIF: easy REF: p. 10
17. When the economy begins to show clear signs of a slowdown, it may be a good time to invest in
fixed-interest securities.
ANS: T PTS: 1 DIF: moderate REF: p. 13
18. Leading economic indicators are those that do the best job of measuring the state of the economy
at any point in time.
ANS: F
leading economic indicators help predict how the economy will do in the future.
PTS: 1 DIF: easy REF: p. 9
19. Inflation is defined as a steady rise in the general level of prices.
ANS: T PTS: 1 DIF: easy REF: p. 10
20. Deflation involves falling prices.
ANS: T PTS: 1 DIF: easy REF: p. 10
