Week 2 Review

When inflation rises at a higher rate than income (wages), purchasing power is _______.

• eroded (reduced)

• increased

• doubled

• not impacted

Answer explanation

Inflation raises the costs of goods and services. When income or wages doesn't keep up with inflation, a consumer's ability to buy the same amount of good or services is decreased (purchasing power).

The reason people cannot have everything they want is

• shortages

• credit problems

• scarcity

• explicit alternatives

Answer explanation

Scarcity is the condition of not being able to have all of the goods and services that one wants.

It exists because human wants for goods and services exceed the quantity of goods and services that can be produced using all available resources.

Individuals, governments, and societies experience scarcity

Tati made an impulse purchase by buying a $1,000 purse. An impulse purchase means she most likely did not think of the _____ alternatives for the $1,000.

• best

• explicit

• implicit

• other

Answer explanation

Making good choices should involve trading off the expected value of one opportunity against the expected value of its best alternative.

Which of the following best describes why people are impatient to make a purchase?

• Great sales don't last long

• Many goods and service won't be available in the future.

• There is a fear that money will be worthless in the future.

• Consumption today is valued more than consumption in the future.

Answer explanation

Society pushes consumption today from many different angles including peer pressure, mass marketing, social media, and more. The idea of getting more (or getting a better deal) tomorrow is often not valued.

Opportunity costs is

• all of the alternatives we have in making a decision

• the condition that exists when there are limited wants and unlimited resources

• the value of the next best alternative when a decision is made; what's given up

• the price that is paid when purchasing something that you don't really want

Answer explanation

Opportunity costs is the value of what you lose when choosing between alternatives. It's what's missed from the option not taken.

All of the following are generally found in personal family budgets EXCEPT

• food/groceries

• transportation

• private school tuition

• rent or mortgage payments

Answer explanation

Private school tuition might be a budgeted expense for a family. But that's a choice that will vary greatly and not by typical for most families in the US.

All of the following are categories for a budgeted expenses EXCEPT

• needs or necessities

• wants or discretionary

• security or savings

• income or investment returns

Answer explanation

Income or investment returns are NOT expenses. The other three options are common EXPENSE categories for a personal budget.

Charlie takes a job where he will be paid bi-weekly. How many paychecks will he receive over a 12 month period?

• 12

• 52

• 26

• There answer cannot be known with the information provided.

Answer explanation

Bi-weekly is 26 pay periods over a 52 week period. Most months will have 2 pay periods in a year, but some will have 3.

How is it possible people can spend more money than they make?

• They can purchase using credit.

• They can reach a deal with the merchant or store owner.

• They can "float" checks to cover the costs today.

• It's not possible for people to spend more than they make.

Answer explanation

The use of credit is common in the American economy from the individual consumer (you and me) up through local, state, and the federal government.

Match the following items with the BEST budget category.

• Debt Reduction

• Mortgage payments

• Income

• Contribution to your son's 529 (education savings plan) account

• Discretionary

• Paycheck

• Savings

• Credit Card Payment

• Necessities

• Netflix