Chapter 1 Flashcards
The study of personal finance includes…
Cash management, Risk management, and retirement planning.
What do you have to restrain in order to achieve financial objectives?
Current Consumption
What is financial success defined as?
The achievement of financial aspirations that are desired.
What is the easiest for a person to forecast?
Income
What is the preferred phase of the economic cycle?
Expansion
What is the economic phase with conditions making it easy for consumers to buy homes, cars, and other goods?
Expansion
Prior to which phase of the economic cycle does interest rates and inflation climb?
Recession
When is a good time in the economy to buy stock?
In the trough of a recession
What are the two statistics one should track to understand the direction of the economy?
The gross domestic product and the index of leading economic indicators.
What is the gross domestic product?
The statistic that measures the value of all goods and services produced in the United States.
What is a signal that economic growth will slow in the months ahead?
A falling index of leading economic indicators for three or more consecutive months.
Dick mitchell received a $3000 raise this year. This increased his salary as an associate TV producer from $30,000 to $33,000. What percentage increase in nominal income did Dick receive?
10.0 percent
If your income increased from $23,000 to $26,000 during a period when the rate of inflation was 4 percent, what was your real income after the raise?
$25,000
Corky, a college teaching assistant, received a raise of $1000 from $12,000 to $13,000 this year. If inflation was 2 percent over the same period, which of the following is true?
Corky’s increase in real income was $745.
The U.S. government measures inflation using what?
The consumer price index.
What is personal inflation rate?
The rate of increase in prices of items purchased by an individual or family.
For whom is it good news the the inflation rate is rising?
Nobody
Why does rising interest rates depress stock prices?
Because businesses pay more when they borrow, thereby reducing profits, future earnings will not be worth as much as today, and stock investors are lured away to interest-paying investments.
What is the one key interest rate to focus on when trying to forecast interest rates in the future?
Federal funds rate.
Kurt spent $80 on a new sweater rather than using this money to buy his personal finance textbooks. The cost of doing without the textbooks is called what?
The opportunity cost
Jack and Marsha are trying to decide if living 10 miles closer to their work is worth the extra $5,000 in the cost of the house. Which decision-making concept are they using?
Marginal Utility
Raymond just received a $1500 Christmas bonus from his employer. If he pays a 27 percent marginal tax rate for federal income taxes, his state income tax is 3 percent, and the Social Security tax rate is 7.65 percent, approximately how much of the $1500 bonus will Raymond have left to spend on Christmas presents?
$935
Jerri is in the 30 percent marginal tax bracket. She can earn $500 investing in a taxable bond or $375 investing in a tax-exempt bond. Which of these bonds provide her with the most after-tax income?
The tax-exempt bond.
Most people save for what type of goals by putting away a series of payments?
Long-term
