Financial Choices
The Economy
Budgeting
100
List the Four Principles of Money Management
Interest, Time Value of Money, Inflation, and Risk
100
What is the difference between Inflation and Deflation?
Inflation- loss of currency value over time characterized by an increase in average prices Deflation-gain of value of currency overtime by a decrease in average prices
100
What is the difference between a Comprehensive budget and an Operatinig budget?
Comprehensive Budget-covering all aspects of financial life; takes time; involves both spouses Operating Budget-shows the recurring income and expenses related to short term fin goals
200
What does the Time Value of Money state?
The value of money will change over time
200
True or False: Cost of Living in a certain area can effect the value of the currency in that area
True: Cost of living is higher on the coast therefore prices are higher on the coast than in the midwest on things such as housing
200
What is budget variance?
The difference between the actual results of your financial activity and your expected budgeted results
300
What is the difference between and Annuity table and a Lump Sum Table?
Annuity Table- Estimate of the total future value of X invested each year for a period of years with a certain amount of interest Lump Sum Table- Estimate of the future value of the X amount originally invested compounded after a period of years
300
What is CPI and what does it do?
CPI-Consumer Price index-measures inflation by monitoring currency values over time for a defined bundle of products/services
300
What is the continuous process of making financial decisions?
Financial planning
400
What three things does the simple interest calculation include in its calculation?
The Principle amount, the Interest Rate, and the Time in Years
400
What is the formula for the Rule of 72?
Dividing 72 by the average annual interest rate gives an estimate of how long it will take to double the amount of money you invested.
400
When the government does not follow it's budget and coins more money to overcompensate, what does this create?
A Deficit- when the government issues more money than it can pay back, it creates a deficit where there is more money in circulation making the value of the dollar less
500
True or False: Compounding can only ever be a benefit when applied to savings or debt.
False: Compounding is a benefit when receiving compounded interest on your savings if possible but it is not good to pay compounded interest on a debt you owe.
500
What are the four basic approaches to risk management?
4 Basic approaches to risk management- risk avoidance, risk reduction, risk assumption, and risk shifting
500
What are the 6 steps of the budget process?
1.Define goals and gather data 2.Form Expectations and Reconciling goals/data 3.Creating the budget 4.Monitoring actual outcomes/analyzing variances 5.Adjusting budget, expectations, or goals 6.Redefining goals
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