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Personal Finance DANTES Practice Test
1) People accept the local currency in a financial transaction because it
A) Is printed by the state government
B) Is customary to do so
C) Is tacitly agreed to that the currency has a certain value
D) Is printed by the Federal Reserve System
2) The U.S. dollar is backed by
D) Full faith and credit of the U.S.Treasury
3) The most important interest rate to the economy in general is the
A) Federal funds rate
B) Home mortgage rates
C) Credit card rates
D) The ten year U.S. Treasury bill
4) The_____________sets the federal funds rate.
A) Central Bank of New York
B) U.S. Treasury
C) Federal Reserve Chairman
5) As a rule of thumb, a multiple of _______ times total annual income would equal the highest priced home a buyer should consider buying.
6) During the pay down of a mortgage, the _____________ year’s payments are almost entirely made up of interest with little pay down of the mortgage balance.
A) First five or so
C) Final five
D) The even
7) By using specified ______________, income tax liability can be reduced.
B) Sources of income
8) Perhaps the greatest obstacles to implementing a one bracket flat tax are ___________ and _________.
A) Lawyers, accountants
B) Distrust of the federal government , excessive military spending
C) Bracket creep, corruption
D) Lower income earners, charities
9) Once you have made a budget and you have some extra funds, your first expense paid should be
A) Student loan
B) Savings and investment funds
C) Medical insurance
10) Because the government doesn’t trust the beneficiary to make wise investment decisions, all pension funds must have a professional investment manager.
DSST Practice Test Answer Key:
- C:) It is tacitly agreed to that the currency has a certain value. When a government loses credibility either from excessive inflation or other political-economic problems, people will look for better ways to protect their wealth. For example, if the prices are in hyperinflation and rising 10% each day, money received today would be worth half as much in just five days.
- D:) Full faith and credit of the U.S.Treasury. In other words, the dollar is based upon faith in the U.S. Treasury to be responsible. When that faith disappears, so does the value in the dollar.
- A:) Federal funds rate. This is the rate that the central bank charges member banks to borrow short term funds. This federal funds rate is the first in a series of rates that go into the construction of various costs for borrowing money.
- D:) FOMC. The Federal Open Market Committee reviews and establishes the federal funds rate. The committee meets monthly to review the current economic situation and decide if there should be any changes to the rate and/or other ways to help promote economic growth while at the same time control inflation.
- D:) 2.5. For example, if you and your spouse make a combined annual income of $100,000 you should limit to a top price of $250,000.
- A:) First five or so.
- D) Deductions. There are standard deductions such as number of dependents, mortgage interest and other defined expenses that qualify as deductions.
- A:) Lawyers, accountants. Helping clients to strategize ways to avoid paying taxes forms the central part of the accounting profession as well as the legal profession. By simplifying the tax laws, these professions would take a big hit. Of course, it cuts both ways as these professionals are highly paid and pay a significant amount of income taxes.
- B:) Savings and investment funds. Set up a budget that meets the reasonable needs of your lifestyle and plan to have enough spare income to divert to emergencies and wealth building.
- B:) False. It is possible for the beneficiary of many pension plans to establish a self directed plan whereby the beneficiary can choose the investments but a custodian and administrator are still required.