Personal Finance — Test Answers

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1
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What effect would a tax increase have on income?

A
It would increase net income.
B
It would not affect net income.
C
It would reduce gross income.
D
It would not affect gross income.
2
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In what way does a 401(k) differ from an individual retirement account (IRA)?

A
A 401(k) allows consumers to contribute before taxes.
B
A 401(k) is created through an individual’s employer.
C
A 401(k) is a good long-term investment strategy.
D
A 401(k) can be created by individuals who deposit money.
3

Under which circumstance would someone need disability insurance?

A
A person has contracted the flu and needs a prescription.
B
A person's suitcase was stolen and valuables were lost.
C
A person was in a car accident and cannot work for several months.
D
A person's house was seriously damaged during a natural disaster.
4

Which interest could best help someone become an athletic trainer?

A
enjoying working with aircraft
B
understanding sports injuries
C
enjoying working with food
D
wanting to manage workers
7

In addition to federal income tax, many people also pay

A
local social security tax.
B
state income tax.
C
local medicare tax.
D
corporate tax.
8

Insurance is a financial service that allows a

A
consumer to transfer all risk to a company.
B
company to maximize risk for a consumer.
C
consumer to share liability with a company.
D
company to control finances for a consumer.
9

The Hendersons are hosting a barbecue for five people and want to purchase enough chicken for everyone to have two pieces. Which option makes the most financial sense?

A
10 individual chicken breasts at $3 each
B
a 12-pack bag of chicken at $20
C
a 20-pack bag of chicken at $35
D
5 two-packs of chicken breasts at $5 each
10

What is the major difference between a nationwide bank and a community bank?

A
The community bank offers more services.
B
The nationwide bank has fewer branches.
C
The nationwide bank services only local customers.
D
The community bank services only local customers.
11

Which statement best describes the role of a credit agency?

A
It teaches how to make smart financial decisions.
B
It tracks the use of credit for lenders.
C
It shows how saving money makes financial sense.
D
It predicts future earning potential for lenders.
13

A federal payroll tax that supports retired workers is

A
sales tax.
B
social security tax.
C
corporate tax.
D
progressive tax.
14

Which statement best defines tuition?

A
Tuition is money borrowed to pay for an education.
B
Tuition is the price of attending classes at a school.
C
Tuition is aid given to a student by an institution.
D
Tuition is federal money awarded to a student.
15

What is a major difference between retail banks and credit unions?

A
Retail banks only serve businesses, while credit unions only serve individuals.
B
Retail banks manage a person’s money, while credit unions focus on providing loans.
C
Retail banks only have small local branches, while credit unions are nationwide.
D
Retail banks operate in order to earn profit, while credit unions are nonprofit.
16

Which is an example of an income deduction?

A
vacation budget
B
wages lost due to illness
C
retirement savings
D
an unexpected salary cut
17

Which statement best describes what happens when people declare bankruptcy?

A
All of their debts are eliminated, and they are given a fresh start.
B
All of their debts are eliminated, but they have to sell their assets, such as their homes.
C
Some of their debts can be eliminated, but they must agree not to take on more debt.
D
Some of their debts can be eliminated, and loan terms are renegotiated with lenders.
18

How is a savings account most useful?

A
for depositing and withdrawing money frequently
B
for saving for a long time without withdrawing
C
for using money for CDs and other investments
D
for using money in the near future but not right away
19

Kenya used a debit card to buy a pair of jeans. Which statement is true about her method of payment?

A
Kenya will pay for the jeans over time.
B
Kenya borrowed the money to buy the jeans.
C
Kenya used money directly from her bank account to buy the jeans.
D
Kenya did not have enough money in her bank account to buy the jeans.
20

Social security and medicare are

A
payroll taxes.
B
local taxes.
C
progressive taxes.
D
corporate taxes.

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