Economics

1
Economics

• Chapter 9

2
Chapter 9

• Section 1

3
Objectives

1. What benefits do people gain by saving money?
2. How do savings accounts differ from time
   deposits?
3. How do economists measure savings?

4
Spend or Save?

• As a consumer you have two choices to make spend
  your money or save your money.
• A person may choose to spend their disposable
  income. (The money you have left over after
  taxes.)
• Another option is to save the money in an
  interest baring bank account.

5
Why Save Money?

• There are five major reasons that people save
  money
• Major purchases
• To pay large annual or semiannual bills
• Unexpected expenses
• Major long term expenses
• Amass wealth

6
Benefits of Saving

• There are two main benefits to saving money in a
  bank account
• Security-Money is insured by the FDIC in case it
  is stolen, or if something tragic happens to the
  bank.
• Interest-To entice you to keep your money in a
  bank account, banks will pay you interest on your
  money.
• -Interest rates depend largely on the minimum
  balance requirements for the account.

7
Types of Accounts

• Banks usually offer two main ways to save money
  Savings Accounts and Time Deposits.

8
Savings Accounts

• Two main types of Savings Accounts
• Regular Savings Account Usually requires a
  minimum balance and pays a smaller interest fee.
  This type of account is very liquid meaning that
  you can turn it into cash quickly.
• Money Market Deposit Account Also provide
  interest. Banks take your money and buy interest
  sensitive bonds. Interest rate you receive
  depends on the interest of the bonds bought. This
  type of account is not as liquid as a regular
  savings account

9
Time Deposits

• Two Main Types of Time Deposits
• Certificate of Deposits (CDs) Very safe
  investment. Lend money to the bank for a specific
  time frame and interest is paid back to you. You
  will be charge a fee if you need your money back
  earlier.
• Savings Bond-Consumers can buy these from the
  government. These are like a loan to the U.S.
  Government and are considered to be a safe
  investment. Example you buy a 25 bond, and in
  ten years the government will give you 50.

10
Chapter 9

• Section 2

11
Objectives

1. What are the goals and elements of a personal
   financial plan?
2. How do financial investment and real investment
   differ?
3. How does real investment affect economic growth.

12
Investment

• Investment Occurs when people exchange their
  money for something of value with the
  expectation of earning a profit in the future.
• In order to invest wisely, you need to develop a
  financial plan.

13
Financial Planning

• Have a good financial plan is key because it
  helps you organize and balance your wants and
  needs with your ability to pay for them.
• Key parts to a Financial Plan
• Spending and Saving Plan Creating a budget of
  your fixed and flexible expenses.
• Investment Plan Details how you plan to put your
  money to work for you.
• Retirement Plan Shows how you will save for
  retirement.
• Estate Plan Develops a plan to transfer your
  assets and an heir after you have passed away.

14
Types of Investment

• If you choose to invest your money, you need to
  be aware of two major types of investment
  Financial and Real Investment.
• Financial Investment The exchange of property
  and money between two individuals were no new
  goods were produced. (Buying real estate)
• Real Investment When new capital goods are
  created because of investment. (Building new
  buildings on land bought.)

15
Real Investment and The Economy

• Real investment helps the economy grow.
• When investors use money to create new capital
  goods, then other companies benefit because they
  have to make the goods and hire people to make
  them.
• Entrepreneurs look for real investors, called
  venture capitalist to help start their
  businesses.
• A venture capitalist helps an entrepreneur
  develop and idea into a marketable product,
  improve facilities, and finance product
  distribution.

16
Chapter 9

• Section 3

17
Objectives

1. Why and how do people invest in stocks?
2. What factors influence stock prices?
3. How do corporate and government bonds differ from
   stocks?
4. What are the advantages and disadvantages of
   futures?

18
Stocks

• Three main reasons people choose to invest in
  stocks
• Gain a profit.
• Limit the risk on their investment.
• Become a part owner of a corporation

19
Stocks

• There are two ways to gain a profit with stocks
• Dividends are paid to shareholders. Paid
  quarterly, semiannually, or annually.
• Sell stock for a higher price than the original
  purchase price.
• -An investor that sells a stock for a higher
  price than the original has earned a capital
  gain.
• -An investor that sells a stock for a lower
  price than the original has incurred a capital
  loss.

20
Stocks

• Stockholders have limited risk, or limited
  liability, in their investment.
• The amount of money a stockholder can loose is
  limited to the amount he or she invested in the
  stock.

21
Stocks

• When people invest in stocks, they become owners
  in a corporation.
• The larger amount of shares of stock someone
  holds, the more votes they have.
• Shareholders can vote to elect a board of
  directors and sometimes make decisions about the
  direction of the corporation.
• Shareholders may decided to vote on a stock split
  if the price of the stock gets too high and
  discourages people from investing in the stock.
• Example Ben holds a share valued at 300 for
  Company X. The stock splits so now he has two
  shares valued at 150 each. Ben now holds two
  shares of stock instead of one and the value of
  each will likely rise.

22
Stocks

• Very few companies sell stock directly to the
  public.
• Brokerage firms and investment banks specialize
  in buying and selling stock.
• A place were many of these brokerage firms and
  investment banks get together to buy and sell
  stock is called a stock exchange.
• The largest stock exchange in the United States
  is called the New York Stock Exchange.

23
Stocks

• There are three main determinants of stock
  prices
• Corporate Finances-is a company making a profit
  or a loss. A company that constantly produces
  high quality products and has good long term
  prospects is said to have blue chip stocks.
• Investor Expectations-What the investors feel the
  value of the stock will be in the future.
• External Forces-when outside forces somehow
  influence the stock market. (wars, unemployment,
  etc)

24
Stocks

• Investors, market analysts, and brokers form
  their expectations about stocks by watching stock
  indexes such as the Dow Jones Industrial Average.
  
• The Dow records changes in the stock prices of a
  select group of 30 major industrial companies.
• When the Dow steadily rises over a period of
  time, there is a bull market.
• When the Dow falls for a period of time, there is
  a bear market.

25
Bonds

• Another way to invest money is through the buying
  of government or corporate bonds.
• Although less risky than stocks, bonds offer a
  lower profit return.
• Corporate bonds are sold at face value and
  investor receive and annual interest payment.
  After the a certain period of time, the last
  interest payment is collected as well as the
  principal (original amount of the bond)

26
Futures

• Another way to invest money is to buy and sell
  futures.
• Types of futures
• Agricultural such as corn, wheat, and soybeans.
• Industrial goods such as copper and crude oil.
• Precious metals such as gold and silver.
• Livestock such as pigs and cattle.

27
Futures

• How do futures work?
• Jackson decides to invest in beef cows. He signs
  a contract in which he agrees to pay a certain
  amount of money for a later delivery of the
  cattle-maybe six months later.
• Jackson is hoping that in six months, the price
  of cattle has gone up so he can sell them to
  someone else for a higher price and make a
  profit.
• Buyers and sellers take a lot of risk when
  dealing with futures.