Question

1-When is your cash flow “in the red”?

A-Income > Spending

B-Spending > Income

C-Net cash flow > Income – Spending

D-Net cash flow > Spending – Income

2-Define opportunity cost.

A-The money it costs to take advantage of an opportunity.

B-The cost of an alternative that must be forgone in order to pursue a certain action.

C-Payment for an opportunity.

D-The cost of purchasing necessities.

3-Which of these is a strategy to spend less and earn more?

A-Pay yourself as soon as you’re done with your monthly shopping.

B-Automatically transfer savings and investments out of your paycheck or checking account.

C-Just say no.

D-All of these.

Answer 1

1. Spending> Income

(This implies that cash flow is negative. The costs or expenses are higher than the receipts)

2. B: The cost of an alternative that must be forgone in order to pursue a certain action.

(Opportunity cost is the cost of losing the next best alternative. For instance if a person has a choice of investing in a 5% investment or a 6% investment, he will select the one that returns 6%. 5% is the opportunity cost of the investment since he has lost the opportunity to earn that much)

3. B-Automatically transfer savings and investments out of your paycheck or checking account.

(By automatic transfer, the disposable money in the account will reduce thus saving more. Also the investments will return some interest thus incfreasing the earnings)