Vocabulary
All of the currency in circulation in the American economy
Money Supply
What is a budget
A plan for spending and saving
The Fed
When saving, do you want a high or low interest rate?
High.
What is the purpose of the Rule of 72?
Tells you how long it will take for your money to double.
Money I earn before taxes and other deductions
Gross Pay/income
What is a variable expense?
What would happen to businesses if the Federal Reserve lowered interest rates?
Businesses would likely expand (Cheaper to borrow money)
What is the equation to solve for simple interest?
Interest=Principal x Rate x Term
What is inflation?
Rise in the general level of prices.
The next best alternative you miss out on when you make a choice
Opportunity Cost
What is a fixed expense?
An expense that stays the same in value every month
What would happen to inflation if the Federal Reserve raised interest rates?
Inflation should go down do to less borrowed money and more people saving
What is the name for earning interest on interest?
Compound interest.
What are the two definitions of interest rate?
The amount earned on a savings account OR the cost of a loan
What is rule number one?
Get out of debt as fast as you can
What is the money that comes out of my paycheck for taxes and insurance called?
Deductions
What is a name for the interest rate that the Federal Reserve sets for banks to borrow from them?
Prime Rate or Federal Funds Rate
What does APR stand for?
Annual Percentage Rate.
Would inflation help or hurt someone on a fixed income? In addition explain why
Hurt because their money loses value and because their income is fixed it will not adjust to the new inflation
the money that enters your bank account after taxes and other deductions have been taken out
Net Pay/Income
What does it mean to "Pay yourself first"?
Setting aside a predetermined amount of money for saving before spending any of it.
What are two powers of the Federal Reserve?
1. Set the Prime Rate
2. Influence Bank Interest Rates
3. Stabilize the Economy (by influencing interest rates)
4. Clear Checks
5.Regulate the money Supply
Solve for the total cost of this loan. Mr. Josey borrows $20,000 at an interest rate of 5% for a term of 4 years.
$24,000
What does "Time Value of Money" mean?
Money available today is worth more than the same amount in the future.