Financial Literacy Exam 1 Practice Question Set

Financial planning is best described as:

• Preparing tax returns only

• A lifelong process of managing money to meet goals

• Avoiding all forms of debt

• Maximizing income regardless of risk

Which of the following is a step in the financial planning process?

• Ignoring changes in your income

• Establishing financial goals

• Spending without tracking

• Assuming constant inflation

Which of the following is an example of unearned income?

• Salary

• Wages

• Dividends

• Overtime pay

Inflation is best defined as:

• A decrease in the price level

• An increase in the general level of prices over time

• An increase in wages

• A decrease in taxes

If inflation is higher than expected, who benefits most?

• Lenders

• Borrowers

• Retirees on fixed pensions

• Savers

If your income rises 4% and inflation rises 2%, your real income:

• Decreases by 2%

• Increases by 2%

• Stays the same

• Cannot be determined

Which of the following reduces the purchasing power of money?

• Interest

• Inflation

• Savings

• Dividends

Which is NOT a component of financial planning?

• Managing credit

• Setting savings goals

• Avoiding all expenditures

• Creating a budget

Which type of goal is 'paying off a student loan within 5 years'?

• Short-term goal

• Intermediate goal

• Long-term goal

• Lifetime goal

An increase in nominal income with no change in real income occurs when:

• Inflation is zero

• Inflation rate equals income growth rate

• Inflation is negative

• Real wages increase faster than inflation