1. Economics, Ms. Lipsitz

2. Key Terms ________ is anything that can be used to buy goods and services.

3. Key Terms Money is anything that can be used to buy goods and services.

4. Key Terms _______ is a function of money where money is how we pay for goods and services.

5. Key Terms Medium of exchange is a function of money where money is how we pay for goods and services

6. Key Terms The idea that money must be able to maintain its value over time is known as _____________.

7. Key Terms The ideas that money must be able to maintain its value over time is store of value.

8. Key Terms The idea that money needs to be measurable in such a way we can compare the price of one good to another is called_____________.

9. Key Terms The idea that money needs to be measurable in such a way we can compare the price of one good to another is called unit of account.

10. Main Ideas What are the six characteristics of money?

11. Main Ideas What are the six characteristics of money? - Durability - Portability - Uniformity - Acceptability - Divisibility - Limited Supply

12. Main Ideas What are the three types of money?

13. Main Ideas What are the three types of money? - Commodity money - Representative money - Fiat money

14. Key Terms __________ refers to any asset that can be used as cash or converted easily into cash.

15. Key Terms Liquidity refers to any asset that can be used as cash or converted easily into cash.

16. Main Ideas What makes up the money supply?

17. Main Ideas What makes up the money supply? - M1 (Liquidity)  Cash  Checking deposits/accounts  Travelers’ checks - M2 (Near -money)  M1  Savings deposits  CDs  Money market accounts

18. Key Terms ___________ are firms that deal with money between borrowers and savers.

19. Key Terms Financial institutions are firms that deal with money between borrowers and savers.

20. Main Ideas What are the four financial institutions?

21. Main Ideas What are the four financial institutions? - Commercial banks - Savings and Loans Associations - Credit Unions - Finance Companies

22. Key Terms __________________ is a regulatory authority that insures, or guarantees, deposits in every account up to $25o,000.

23. Key Terms Federal Deposit Insurance Corporation (FDIC) is a regulatory authority that insures, or guarantees, deposits in every account up to $25o,000.

24. Main Ideas What are the functions of financial institutions?

25. Main Ideas What are the functions of financial institutions? - Storing and saving money - Loans - Mortgages - Credit cards

26. Main Ideas What are some things that occur if a person doesn’t pay back a loan?

27. Main Ideas What are some things that occur if a person doesn’t pay back a loan? - Negative credit report - Repossession of property - Garnishing of wages - Inability to obtain loans in the future - Declare bankruptcy

28. Key Terms __________ is the price you pay to borrow money.

29. Key Terms Interest is the price you pay to borrow money.

30. Main Ideas Why do banks charge interest?

31. Main Ideas Why do banks charge interest? - There is an opportunity cost that comes with the value of money over time, aka the time value of money. - Banks charge interest on loans because they are taking into account the opportunity cost of putting that money to use elsewhere, such as investment in stocks or bonds. - Interest rate not only reflects the opportunity cost of loaning the money, but also an additional amount that represents the bank’s profit from making the loan.

32. Key Terms All of the money deposited at the bank goes into the same _______, money kept by the bank to meet their consumer’s demand.

33. Key Terms All of the money deposited at the bank goes into the same reserve, money kept by the bank to meet their consumer’s demand.

34. Key Terms _________________ is a banking system that requires banks to keep only a fraction of the funds in reserve and loan out the rest.

35. Key Terms Fractional reserve banking is a banking system that requires banks to keep only a fraction of the funds in reserve and loan out the rest.

38. Main Ideas Why do people risk their finances when investing?

39. Main Ideas Why do people risk their finances when investing? - People risk because of the prospect of getting a return.

40. Main Ideas What are you giving up when you invest? What opportunity cost is associated with investing?

41. Main Ideas What are you giving up when you invest? - Liquidity What opportunity cost is associated with investing? - When you invest, you’re giving up the opportunity to do something with your money right now.

42. Main Ideas How do we measure what you’re giving up when you invest?

43. Main Ideas How do we measure what you’re giving up when you invest? - Rate of return on investment: percentage of how much you expect to get if you were to invest in something - AKA: interest rate

44. Main Ideas The _____ the return, the ______ the risk of losing the investment.

45. Main Ideas The _____ the return, the ______ the risk of losing the investment. - The higher the return, the higher the risk of losing the investment Or - The lower the return, the lower the risk of losing the investment.

46. Main Ideas Why would CDs and bonds be less riskier investments?

47. Main Ideas Why would CDs and bonds be less riskier investments? - As long as you leave the money in a CD or bond, the money is guaranteed a specific rate of return. - The only risk is that you don’t have access to your money for a period of time.

48. Main Ideas Why would Sears and Twitter be riskier investments?

49. Main Ideas Why would Sears and Twitter be riskier investments? - Subject to the pressures of their shareholders and financial markets in general  Buyers and sellers determine the prices of assets like stocks and bonds  Prices of these assets are determined by supply and demand  These prices influence the rate of return  Buyers and sellers are going to make decisions based on any new financial information.

50. Key Terms ___________ is investment in a variety of financial assets to reduce risk.

51. Key Terms Diversification is investment in a variety of financial assets to reduce risk.

52. Main Ideas What is the key to diversification?

53. Main Ideas What is the key to diversification? - Key is to spread out your investments over a variety of products ranging from low risk to high risk