1
Personal Finance 13th Edition Kapoor
Test Bank
Personal Finance, 13e (Kapoor)
Chapter 1 Personal Finance Basics and the Time Value of Money
1) Increased demand for a product or service will usually result in lower prices for the item.
2) Inflation reduces the buying power of the dollar.
3) Lenders benefit more than borrowers in times of high inflation.
4) Economics is the study of using money to achieve financial goals.
5) Reduced spending causes unemployment from staff reduction.
6) A financial plan is another name for a budget.
7) Developing and using a budget is part of the “obtaining” component of financial planning.
8) Planning to buy a car is an example of an intangible-purchase goal.
9) Opportunity costs refer to what a person gives up when making a choice.
10) Personal opportunity costs refer to time, effort, and health that are given up when a decision
is made.
11) Time value of money refers to changes in consumer spending when inflation occurs.
12) Interest on savings is calculated by multiplying the principal amount times the opportunity
cost times the annual interest rate.
13) Present value is often referred to as compounding.
14) Opportunity costs may be viewed only in terms of financial resources.
15) Gross Domestic Product (GDP) measures the total value of goods and services produced
within a country’s borders, excluding items produced with foreign resources.
16) Trade balance is defined as the difference between a country’s exports and its imports.
17) The main goal of personal financial planning is managing your money to:
A) save and invest for future needs.
2
B) reduce a person’s tax liability.
C) achieve personal economic satisfaction.
D) spend to achieve financial objectives.
E) save, spend, and borrow based on current needs.
18) Inflation is likely to result from:
A) lower demand by consumers.
B) increased production by business.
C) lower interest rates.
D) increased demand by consumers without increased supply.
E) an increase in the supply of a product.
19) Who is most likely to benefit from inflation?
A) Retired people
B) Lenders
C) Borrowers
D) Low-income consumers
E) Government
20) Higher consumer prices are likely to be accompanied by:
A) lower union wages.
B) lower interest rates.
C) lower production costs.
D) higher interest rates.
E) higher exports.
21) With an inflation rate of 8 percent, prices would double in about years.
A) 4
B) 6
C) 9
D) 10
E) 12
22) Increased consumer spending will usually cause:
A) lower consumer prices.
B) reduced employment levels.
C) lower wages.
D) lower interest rates.
E) higher employment levels.
23) Higher interest rates can be caused by:
A) a lower money supply.
B) an increase in the money supply.
C) a decrease in consumer borrowing.
D) lower consumer spending.
E) increased saving and investing by consumers.
3
24) The risk premium you receive as a saver is based:
A) on your credit rating.
B) on the amount of money you are borrowing.
C) only on the uncertainty associated with getting your money back.
D) only on the expected rate of inflation.
E) in part on the uncertainty associated with getting your money back and the expected rate of
inflation.
25) Which of the following would increase the risk of a loan to the lender?
A) Inflation rate greater than loan rate
B) A short time to maturity
C) Consumer Price Index
D) Rule of 72
E) Inflation rate lower than loan rate
26) The stages in the family and financial needs of an adult are called the:
A) financial planning process.
B) budgeting procedure.
C) personal economic cycle.
D) adult life cycle.
E) tax planning process.
27) The study of how wealth is created and distributed is:
A) financial planning.
B) opportunity cost.
C) inflation.
D) economics.
E) a market economy.
28) The main economic influence that causes inflation is:
A) Changes in the stock market.
B) Decreases in interest rates.
C) Increases in employment.
D) Decreases in government spending.
E) Increases in demand without increases in supply.
29) The Fed refers to:
A) government regulation of business.
B) Congress.
C) the Federal Reserve System.
D) the Federal Deposit Insurance Corporation.
E) spending by the federal government.
4
30) The main responsibility of The Fed is to:
A) maintain an adequate supply of money.
B) approve spending by Congress.
C) set federal income tax rates.
D) determine illegal business activities.
E) maintain a balanced budget for the federal government.
31) Some savings and investment choices have the potential for higher earnings. However, these
may also be difficult to convert to cash when you need the funds. This problem refers to:
A) inflation risk.
B) interest rate risk.
C) income risk.
D) personal risk.
E) liquidity risk.
32) Which of the following would cause consumer prices to drop?
A) Increased consumer borrowing
B) Higher spending by consumers
C) A demand for higher wages
D) Hidden inflation
E) Increased supply by business without increased consumer demand
33) Attempts to increase financial resources are part of the component of financial
planning.
A) planning
B) obtaining
C) saving
D) sharing
E) protecting
34) A major activity in the planning component of financial planning is:
A) selecting insurance coverage.
B) evaluating investment alternatives.
C) gaining occupational training and experience.
D) anticipating spending through budgeting.
E) establishing a line of credit.
35) The ability to readily convert financial resources into cash without loss of value is referred to
as:
A) bankruptcy.
B) liquidity.
C) investing.
D) saving.
E) opportunity cost.