Chapter 1—Understanding the Financial Planning Process
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: 1-1
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: 1-1
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: 1-2
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: 1-2
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: 1-1
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: 1-1
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: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Knowledge
8. The most effective way to achieve financial objectives is through financial planning.
ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-1
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: 1-2
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: 1-1
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: 1-1
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: 1-1
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: 1-1
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: 1-1
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: 1-2
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Knowledge
16. Average propensity to consume refers to how much of your money you plan to save in your
financial plan.
ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension
17. Tangible assets are earning assets that are held for the returns they promise.
ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension
18. Financial assets are paper assets, such as savings accounts and securities.
ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-1
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: 1-1
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: 1-1
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: 1-2
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: 1-2
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: 1-1
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: 1-1
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: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Knowledge
8. The most effective way to achieve financial objectives is through financial planning.
ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-1
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: 1-2
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: 1-1
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: 1-1
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: 1-1
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: 1-1
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: 1-1
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: 1-2
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Knowledge
16. Average propensity to consume refers to how much of your money you plan to save in your
financial plan.
ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension
17. Tangible assets are earning assets that are held for the returns they promise.
ANS: F PTS: 1 DIF: Challenging OBJ: LO: 1-1
NAT: BUSPROG: Reflective thinking STA: DISC: Financial Markets and Interest Rates
KEY: Bloom's: Comprehension
18. Financial assets are paper assets, such as savings accounts and securities.
ANS: T PTS: 1 DIF: Moderate OBJ: LO: 1-1
