Question Bank in line with Personal Finance,Garman,11e

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