Housekeeping

Housekeeping The following assignments were due for our

international unit:

1. Economic political cartoons w/ questions

2. Corrections for the quiz

3. Chapter 4 questions and vocab from the EOCT book

4. Sugar research

5. Current event March 23

6. Tree map on trade barriers

7. Exchange rate homework (unit 7 lesson 42)

8. Free trade vs. protectionism presidential speech

Sponge: Monday, November 13 What expense line item was the largest in

the budget that you created on Friday?

Sponge Check! Monday, April 11

Write two quiz questions for international economics: one multiple-choice and one Jeopardy-style. Make them good!

(1)On May 29, 2001, how much American money would an importer receive in exchange for one British pound?

(2)On the same day, how many Euros would exporters receive for each American dollar they exchanged?

Personal Finance

SSEPF2 The student will explain that banks and other financial institutions are businesses that channel funds from savers to investors.

a. Compare services offered by different financial institutions.

b. Explain reasons for the spread between interest charged and interest earned.

c. Give examples of the direct relationship between risk and return.

d. Evaluate a variety of savings and investment options; include stocks, bonds, and mutual funds.

Banks and Financial Institutions Banks and financial institutions are

businesses that channel funds from savers to investors

Commercial Banks Functions/services offered:

Receive deposits of money Extend credit

Credit cards Provide loans Checking and savings accounts

Debit cards

Structure: Similar to corporations with stockholders who

own and manage banks for a profit Main source of income:

Interest and fees charged on loans

Commercial Banks, continued In the event of a bank failure, your money is

protected as long as the bank is insured by the Federal Deposit Insurance Corporation (FDIC).

Any lending institution will require some kind of collateral to secure a loan Collateral is anything of value that could be

used to cover the value of the loan in the event the borrower is unable to repay the loan

E.g., the bank takes your house as collateral for a mortgage and your car serves as collateral for a car loan

Credit Unions Functions/services offered:

Receive deposits of money Extend credit Provide loans Checking and savings accounts: typically offer

higher interest rates on deposits because they pay lower taxes than banks

Structure: Cooperative associations that serve only their

members; members own and control C.U. Main source of income:

Interest and fees charged on loans

Savings and Loan Associations Savings institutions

designed to aid home-building and savings

Deposits are not as easily accessible, but rates of return are higher

Focuses on mortgages

Payday Loan Company Short-term loans made based

on a borrower’s future paycheck Typically much higher

interest rates than banks Fees are extremely high: up to

$17.50 for every $100 borrowed Interest rates: 911% for a one-

week loan; 456% for a two-week loan, 212% for a one-month loan.


b. Explain reasons for the spread between interest charged and interest earned.

Interest Charged vs. Interest Earned Banks pay depositors interest on the

money they deposit as savings

Banks charge borrowers interest on the money they borrow

In order to make a profit, the banks must charge a higher interest rate to borrowers than the rate they pay their depositors

Sponge: Tuesday, April 171. Would you rather save your money in an

account that earns simple interest or compound interest?

2. Who has the comparative advantage in coats, according to the table below?

Coats Shoes

United States 25 50

Canada 5 10

SSEPF4 The student will evaluate the costs and benefits of using credit.

c. Explain the difference between simple and compound interest rates.

Simple vs. Compound Interest Interest is the amount of money (usu.

expressed as a percentage) that a lender charges a borrower in exchange for the use of their money As a borrower, you pay interest when you

repay a loan in addition to repaying the principal amount of your loan

As a saver, the bank pays you interest when you deposit money in a checking or savings account

There are two types of interest: simple and compound

Simple Interest Simple interest is a rate that is applied

only to the value of the principal (the amount of money originally borrowed) E.g., on a $10,000 loan with 5% interest, your

annual interest payment will always be $500 (10,000 x 5%)

E.g., on a $10,000 savings account earning 5% interest, you will earn $500 each year in interest (10,000 x 5%)

Compound Interest Compound interest is applied to both the

principal and the accrued interest E.g., on a $10,000 loan with 5% interest, your

annual interest payment will be $500 at the end of year 1 (10,000 x .05). Your balance at the end of year 1 will be $10,500

In year 2, your interest will be calculated on the principal plus the earned interest from year 1: (10,000+500) x .05= $525. Your balance at the end of year 2 will be $11,025

In year 3, your interest will be calculated on the principal plus the earned interest from year 1 and 2: (10,000+500+525) x .05= $551.25. Your balance at the end of year 2 will be $11,576.25

Compound v. Simple Interest

VE 4 Video re. Compound Interest


c. Give examples of the direct relationship between risk and return.

Risk and Return Return is the eventual payoff you receive

from an investment Risk is the chance that an investment

might end up losing money rather than making it

Risk and Return, continued The general rule of thumb: The greater the

risk, the greater the possible return; the lower the risk, the lower the return

BIG QUESTION: How much risk can you afford? If you make an investment and it fails causing

you to lose all of your money invested, will you still be financially okay?

Stocks, Bonds and Mutual Funds Stocks = shares in a company that an

individual or organization purchases that give the person or organization a partial ownership interest in the company Selling stocks is one way for companies to

finance their business (i.e., to raise money) Purchasing stocks is a way for individuals or

organizations to invest their money Stocks are risky by nature

Investors in Enron lost a lot of money Early investors in MicroSoft or Apple made a lot

of money

Stocks, Bonds and Mutual Funds Bonds are loans to a company or a

government, therefore they offer a lower rate of return Issuing bonds is another way for a company

or government to raise money Purchasing bonds is another way for

individuals or organizations to invest their money

No ownership interest is transferred in the sale of a bond

Stocks, Bonds and Mutual Funds Mutual funds pool money from a number

of investors to buy a range of stocks Risk is reduced because the investment is

spread among several companies (diversification): if one fails, it is likely that others will succeed

Risk is reduced because mutual funds are managed by financial experts

Downside of mutual funds is that the return is typically lower and investors must pay some kind of fee to the fund manager

Reasons People Save1. Savings increase when interest rates are

high (higher return outweighs the loss of immediate gratification of a purchase)

2. Large purchases, e.g., house, car, vacation

3. Big life events, e.g., having a baby, college, retirement

SSEPF4 The student will evaluate the costs and benefits of using credit.

a. List factors that affect credit worthiness. b. Compare interest rates on loans and

credit cards from different institutions.

Credit Worthiness: Should a bank lend you money? Banks look at several factors to determine

whether a borrower is likely to pay back a loan: Credit score: a standardized number based

upon an individual’s history as a borrower. Making monthly payments and paying bills on time will earn you a good credit score. Loan defaults or late payments = low credit score.

Salary/wages and savings Property for collateral Existing debts

Credit Worthiness: Should a bank lend you money? A high credit score and strong credit-

worthiness will increase the chances of you getting a loan at a favorable interest rate

A low credit score or other negative factors will result in a higher interest rate because banks perceive you as a greater risk of default (or you might be denied the loan all together)

Do I Have a Deal for You . . . What kinds of enticements will companies

use to get new credit card customers? Can credit-card rewards affect a person’s

spending decisions?

Work Period: Tuesday, April 17 Review worksheets

Sponge: Wednesday, April 181. What are the different features or terms

on credit cards that might be available from various companies?

2. What kinds of insurance do you think are available to consumers and businesses?

3. Higher demand for U.S. exports will typically result in

1. an increase in the international value of the dollar2. an increase in the international value of foreign

currencies3. an increase in the trade deficit of the United States4. an increase in the price of foreign-produced goods

in U.S. markets

Your last current event is due this Friday. Make it a good one (yes, there can be good current events related to economics)—everyone will have to discuss their event.

Housekeeping Stuff 1. Saturday School: April 28. Zap zeroes!2. EOCT Cram Jam: Saturday, May 5, 9:00 to 1:00

Everyone needs to attend this session—clear your calendars!

3. Parent-teacher conference night this Thursday from 5:00 – 7:00. 200 class-participation points if your parent comes

by themselves; an additional 100 points if you come with your parent

4. Tutorials: Mon & Fri 3:30-4:30; Tues & Thurs 4:20-5:00; before school as needed

SSEPF5 The student will describe how insurance and other risk-management strategies protect against financial loss.

a. List various types of insurance such as automobile, health, life, disability, and property.

b. Explain the costs and benefits associated with different types of insurance; include deductibles, premiums, shared liability, and asset protection.

Insurance Insurance involves transferring risk to

others. Insurance provides financial coverage if an

insured item is lost or damaged Protects policyholders and their beneficiaries

from financial devastation

Types of insurance Life: Pays money to a beneficiary on the

death of an insured; insured pays monthly premiums

Health/medical: Covers health and medical expenses

Disability: Provides a policy holder income in the event that they become disabled and cannot work

Types of Insurance, continued Property insurance:

Homeowner’s insurance: Covers a policyholder’s house in the event that it is damaged or destroyed

Automobile insurance: Liability and possibly collision

Liability insurance: Pays for damages incurred by another person if the policyholder is found financially liable for an accident E.g., auto liability, homeowner’s policy,

comprehensive liability

Insurance-related Terms Deductible: The amount you have to pay out-of-

pocket for expenses before an insurance company will cover the remaining costs.

For example, let’s say you have an auto insurance policy that has a $300 deductible. You are speeding out of the McNair parking lot one day, and because you haven’t learned to drive yet, you run into Mr. Owens’ car.

If your medical expenses are $2,000 (the Illuminati rigged the accident), how much of your medical bill would you have to pay out of pocket?

What if you got lucky and your medical bills were only $300 (your car ran over your own foot when you got out to see how bad you hurt Owens’ car)—how much would you and the insurance company pay in that case?

Insurance-related Terms Premium: Monthly, quarterly or annual price paid for

an insurance policy. The premium is paid by the insured party to the insurer, and primarily compensates the insurer for bearing the risk of a payout should the insurance agreement's coverage be required.

Typically there is an inverse relationship between premiums and deductibles: The higher your premium, the lower your deductible The lower your premium, the higher your deductible

In your notes, write why you think this relationship is inverse. Also write why someone might choose to have a low-premium/high-deductible policy.

Insurance-related Terms Asset protection: A benefit from holding

insurance that provides financial payments in the event of the loss of a covered asset. Also, insurance can protect other individual or business assets by providing a source of repayment in the event of a loss due to liability. (In other words, if you are sued for damages from a car wreck, your auto insurance policy can pay for the damages instead of you having to sell other assets to get the funds to pay.)

Insurance-related Terms Purchasing insurance involves shared

liability between the insurer and the insured.

This means that the insurance company assumes a pre-determined amount of financial liability for a claim that the insured might file because the insured has paid premiums for the financial protection.

Work Period: Wednesday, April 181. Complete “Comparing Credit Card Offers”2. Complete “Tracking Your Spending”3. Create a tree map on one of the following:

1. Various types of insurance (include automobile, health, life, disability, and property); include facts and examples of each

2. Various types of financial or lending institutions that we discussed (commercial banks, credit unions, savings & loans, payday loan company); include facts and examples of each

Worksheets are due at the end of class Tree map is due first thing tomorrow

Work Period: Tuesday, Nov. 15 Choose two of the following:

1. Create a tree map on the various types of investment options (include stocks, bonds, mutual funds and certificates of deposit (CDs))

2. Create a tree map on various types of insurance (include automobile, health, life, disability, and property)

3. Create a tree map on the various types of financial or lending institutions that we discussed (commercial banks, credit unions, savings & loans, payday loan company)

4. Create a double-bubble comparing banks and payday loan companies

5. Create a double-bubble comparing stocks and mutual funds

Sponge: Thursday, April 19 DO NOT MOVE MY DESKS!!!!1. What skills are required to be successful in

the workplace? Name four.2. What kind of benefits would result from

your investment in education, training, and skill development?

3. What are the tools of monetary policy and who controls those tools?

SSEPF6 The student will describe how the earnings of workers are determined in the marketplace. a. Identify skills that are required to be successful in the workplace. b. Explain the significance of investment in education, training, and skill development.

Housekeeping Stuff 1. Saturday School: April 28. Zap zeroes!2. EOCT Cram Jam: Saturday, May 5, 9:00 to 1:00

Everyone needs to attend this session—clear your calendars!

3. Parent-teacher conference night this Thursday from 5:00 – 7:00. 200 class-participation points if your parent comes

by themselves; an additional 100 points if you come with your parent

4. Tutorials: Mon & Fri 3:30-4:30; Tues & Thurs 4:20-5:00; before school as needed

Refresher on Monetary Policy

What does DR RROMO stand for?

Refresher on Monetary Policy

Who controls monetary policy?

SSEPF3 The student will explain how changes in monetary and fiscal policy can have an impact on an individual’s spending and saving choices.

a. Give examples of who benefits and who loses from inflation.

b. Define progressive, regressive, and proportional taxes.

c. Explain how an increase in sales tax affects different income groups.

The Impact of Fiscal Policy If the government

raises taxes, the following will result: Consumers are left with

less income to invest and to spend in the marketplace, which leads to:

A decrease in inflation as a result of the decreased demand for products

The Impact of Fiscal Policy, cont.

When taxes are low, inflation increases because people have more money to spend so: Producers can

afford to raise their prices and still do well

Effects of InflationWho’s Helped Some people

speculate in an attempt to take advantage of rising prices. They may buy luxury items or other expensive goods that are expected to increase in price. (“Buy low, sell high”)

Who’s Hurt Creditors or lenders

are hurt because loans that were made at the beginning of an inflationary period are repaid later with dollars that buy less

People on fixed incomes

Types of Taxes1. Progressive tax: Any tax for which the

amount you pay increases with income E.g., a progressive income tax means that

someone who makes $100,000 probably pays more than a person who earns $30,000 (maybe 15% versus 5%)

Types of Taxes, continued

2. Regressive tax: People pay a higher percentage of tax the less money they make

Sales taxes are regressive because people with lower incomes pay a higher percentage in tax:

If taxes on a new $10,000 car are 7% or $700, that amount will be a higher proportion of the income of someone who makes $20,000 per year than a person who makes $100,000

Sales taxes, therefore, affect poorer people more than the wealthy

Types of Taxes, continued3.Proportional tax: Everyone pays the

same amount proportional to their income. E.g., a proportional income tax would require

everyone to pay the same percentage of their annual income (say 10%).

Therefore, the millionaire would pay $100,000, the person earning $50,000 would pay $5,000, and the high-school grad earning $20,000 would pay $2,000—each pays the same proportion of their income but different amounts.

Work Period Answer the questions in chapter 5 of your

EOCT review book on pages 96, 100, 105, and 110 – 112. You must write the question and the correct

answer. For multiple-choice questions, in addition to

the correct answer you must prove that your answer is correct with a justification.

Happy Friday!1. What basic economic problem do both higher-income nations and lower-income nations have in common?A too many unskilled laborersB lack of capital goodsC too much governmentD scarcity of resources

Checkpoint todayCurrent events discussionIndividual progress-report reviews

Closing: Wednesday, Nov. 15

On a sheet of paper, answer the following questions as a TOTD:

1. If the Fed lowers the reserve requirement, then Octavius, as a consumer, will be more likely toa. Buy a house c. Buy bondsb. Save his money d. Pay a high interest rate

2. Je’Rontai owns a restaurant in Atlanta. He would probably like it if

a. The Fed buys bonds c. Congress raises taxes b. Fed raises reserve reqt d. There was a higher

discount rate

Documents

Housekeeping