Economics for robert

Economics

Part 4: Twelve Key Elements of Practical Personal Finance

Practice Test

· Your comparative advantage in a specific area is determined by

· the market value of the skill relative to your opportunity cost of supplying it.

· the absolute value of the skill in the performance of a specific job.

· minimum wage laws, health and safety standards and marginal tax rates.

· the comparative positions of the wealthy, the middle income individuals and low income individuals.

· Financial insecurity in America is primarily the result of

· the low incomes of Americans.

· the huge amount of time and complex knowledge required for basic financial planning.

· a low rate of personal saving and poor financial planning.

· a shortage of financial planners and portfolio managers.

· Economic analysis indicates that

· single-minded pursuit of money and wealth is the key to happiness.

· wealthy people are happier than those with lots of friends, satisfying marriages, and strong religious convictions.

· the desire for more wealth is limited to those who are interested only in their personal welfare.

· no matter what our objectives in life, they are easier to achieve if we have more wealth.

· Compared to high school graduates, those who drop out are

· more valuable to employers.

· more likely to be highly productive.

· more likely to earn high incomes.

· more likely to be poor.

· Which of the following is true?

· Most entrepreneurs work very few hours.

· Entrepreneurs generally save less of their income than other Americans.

· Additional years of schooling will substantially increase your earnings even if they fail to increase your productivity and ability to provide others with things that they value.

· If you want to make a lot of money, you had better figure out how to provide others with substantial value and find ways to discover and act on valuable opportunities.

· A monthly budget can help you achieve financial security by

· helping you choose stocks that are most likely to increase in price.

· reducing the likelihood that you will face unexpected expenditures for maintenance and repairs.

· expanding the borrowing limits on your existing credit cards and increasing the number of credit cards you hold.

· increasing your financial awareness and helping you allocate your funds more effectively.

· Which of the following is the best example of an item that a “real world” savings account is designed to cover?

· the monthly payment for the lease of your apartment

· the purchase of the gasoline you use driving back and forth to work

· an unexpected expenditure to repair the transmission of your car

· funds you are setting aside for your retirement years

· The use of debt financing to purchase food, clothing, vacations, and other non-durable items

· is prudent as long as you plan to save more in the future.

· is imprudent unless you need to purchase these items to impress your friends.

· is prudent as long as you have an unused balance on your credit card.

· is imprudent because such purchases will mean that you will soon be making payments on items that have no value.

· If you are using a credit card prudently, you should

· make only the minimum payment each month.

· pay the balance in full each month.

· pay only the interest on any outstanding balance.

· gradually expand the amount borrowed to the card’s credit limit.

· Traditional IRAs, 401k plans, and other tax-deferred saving plans will

· reduce your current tax liability because funds paid into these plans are tax deductible.

· make it more difficult for a young person to save and accumulate wealth.

· increase your tax liability now, but you will pay lower taxes when you withdraw the funds.

· help those with the lowest incomes, but will be of little value to those with higher incomes who want to save for retirement.

· Which of the following is an advantage of an indexed equity mutual fund relative to a managed equity fund?

· Indexed funds generally have better stock pickers.

· Indexed funds engage in more detailed research.

· Indexed funds have lower operating costs because they engage in less stock trading.

· The compensation of those directing indexed funds is generally higher than those directing managed funds.

· The random walk theory indicates that

· investors can make money by purchasing stocks that are widely expected to earn substantial profits in the future.

· while changes in the prices of specific stocks are difficult to predict, experts are able to forecast the future direction of broad stock market indexes with a high degree of accuracy.

· changes in stock prices are driven by surprise occurrences that are difficult to predict.

· managed mutual funds will persistently out-perform indexed funds.

· The variation in the rate of return one can expect from ownership of stocks will generally be smaller

· if all of the funds are invested in a specific sector of the economy such as health care.

· if a diverse set of stocks is held over a lengthy period of time, such as 30 or 40 years.

· if all of the funds are invested in a single stock.

· if the funds are invested for a relatively short period of time.

· Buying shares of corporate stock tends to be risky when

· the stock of a single corporation is purchased.

· the stock may have to be sold within a few months.

· all stocks bought are in the same industry.

· all of the above are true.

· If an investor’s primary stock holding is currently Exxon Mobil, the purchase of which of the following stocks would provide the investor with the largest reduction in risk?

· Chevron

· Shell Oil Corporation

· Wal-Mart

· Texaco