Name _______________________________________________________ Class Period ___________ Date ______________
Fundamental Economic Concepts
SSEF1 – The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity
costs, and tradeoffs for individuals, businesses, and governments.
a. Define scarcity - fundamental problem facing all people; unlimited wants and limited resources to satisfy those wants
b. Define and give examples of productive resources (factors of production) (e.g., land (natural), labor (human), capital
(capital goods), entrepreneurship). (pgs. 4-5)
1) Land - natural resources not created by human effort that are used to produce goods and services
2) Labor - time and effort that a person devotes to producing goods and services.
3) Capital - resource that is used to produce additional goods and services
4) Entrepreneur - ambitious leaders who organize the factors of production to create new goods and services
c. List a variety of strategies for allocating scarce resources (pg. 8)
1. Individuals – Study or sleep
2. Firms – produce product x or product y
3. Government – guns or butter
d. Define opportunity cost -is the value of the best alternative that could have been chosen but was not.
SSEF2 - The student will give examples of how rational decision making entails comparing the marginal benefits and the
marginal costs of an action.
a. Illustrate by means of a production possibilities curve the trade offs between two options (pgs 13 – 18).
-
-
Important points to remember:
1) Shows the tradeoff between the production of two products
2) Shows a frontier, or the maximum, efficient level of production with current resources
a. Points B, C, D
3) Point outside = unattainable (potential future growth)
a. Point X
4) Point A = underutilization/inefficient use of resources
5) The PPF is curved on the graph because of the law of increasing opportunity costs, which states that there is not
always a constant 1 for 1 tradeoff. Sometimes society is better off producing one item than another. So allocating
resources increases the opportunity cost, which causes the curve to bow.
b. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.
(pgs. 9-11)
Thinking at the margin - whenever people decide whether the advantages of a particular action are likely to outweigh
its drawbacks, they engage in a form of cost-benefit analysis.
-
Rational people make decisions when the benefit of an action outweighs the cost.
Alternatives
Criteria
Immediate
Satisfaction
Long Term
Benefits
Entertaining
Immediate
Financial Benefits
Sleep
Yes
No
Yes
No
Necessary for
Long-term
success
No
Economics
Yes
Yes
Yes
No
Yes
SSEF3 The student will explain how specialization and voluntary exchange between buyers and sellers increase the
satisfaction of both parties.
a. Give examples of how individuals and businesses specialize (pgs. 28-29)
- Specialization – allows people to concentrate on a single activity or area of expertise.
a. Individual specialization – a teacher focusing on one subject and mastering it.
b. Business specialization – assembly line production.
b. Explain how both parties gain as a result of voluntary exchange (pgs. 52-53)
- Voluntary exchange - the act of buyers and sellers freely and willingly engaging in market transactions, in such
a way that both the buyer and the seller are better off after the exchange than before it occurred.
SSEF4 The student will compare and contrast different economic systems and explain how they answer the three basic
economic questions of what to produce, how to produce, and for whom to produce.
a. Compare command, market, and mixed economic systems with regard to private ownership, profit motive,
consumer sovereignty, competition, and government regulation (pgs. 52 – 55).
Economic Characteristics
Command
Private Ownership
None - everything is owned by
the state/government.
Market
Complete – consumers and
producers own the factors of
production.
Profit Motive
None – profit is illegal.
Complete – profit is the
driving force behind a market
economy.
Consumer Sovereignty
None – the state does not
make its decisions based on
the consumer.
Complete – the consumer
drives the economy through
their purchases.
Competition
None – firms do not profit,
which eliminates the need for
competition.
High levels – competition
between firms and individuals
exists without government
interference.
Government Regulation
Total – government regulates
the entire economy and
makes decisions based on
what is in its best interest.
None – market economies are
free from government
regulation; laissez-faire.
Mixed
Some – consumers and
producers own the f.o.p.,
while the government
regulates.
Some – profit is allowed and
works as a major incentive,
but consumers/producers are
subject to taxes.
Some – consumers purchases
are important, but
government makes decisions
based on other factors as well.
Some – competition exists in
the private sector, while the
public sector makes decisions
with the public’s welfare in
mind
Some – government regulate
in order to solve the problem
of market failures.
b. Evaluate how well each type of system answers the three economic questions and meets the broad social and
economic goals of freedom, security, equity, growth, efficiency, and stability (pgs. 23-27).
Economic Characteristics
Economic Freedom
Command
Market
Mixed
None
Complete
Some
Economic Security
Complete
None
Some
Economic Equity
Complete
Limited
Some
Economic Growth
Slow
Fast/Slow
Fast/Slow
Economic Efficiency
Inefficient
Total Efficiency
Some efficiency
Economic Stability
Complete
Variable
Variable
What to Produce, How to
Produce, For Whom to
Produce
Government
Consumer
Government and Consumer
SSEF5 The student will describe the roles of government in a market economy.
a. Explain why government provides public goods and services, redistributes income, protects property rights, and
resolves market failures.
1) Public Goods and Services (pg. 62) – Public Goods and Services (pg. 62) - an item whose consumption is not
decided by the individual consumer but by the society as a whole, and which is financed by taxation.
- A public good (or service) cannot be withheld from those who do not pay for it. Public goods (and services)
include law enforcement, national defense, parks, and other things for the use and benefit of all. No market
exists for such goods(market failures), and they are provided to everyone by governments.
2) Redistribution of Income (pgs 68 – 70) - is the transfer of income, wealth or property from some individuals to
others. Welfare, unemployment, social security, etc. are various forms of entitlements that would fall under
this concept.
3) Protection of Property Rights (pg. 52) - the ability of an individual or firm to control the use of the good. This is a
major incentive in a market economy.
b. Give examples of government regulation and deregulation and their effects on consumers and producers
(pgs. 54 -55).
1) Government Regulation – when the government extends its control over the market. For instance, the
environmental protection agency, federal communications commission, federal trade commission, etc.
2) Government Deregulation – when the government reduces its control over the market.
SSEF6 The student will explain how productivity, economic growth, and future standards of living are influenced by
investment in factories, machinery, new technology, and the health, education, and training of people.
a. Define productivity as the relationship of inputs to outputs (pgs. 108 + 116)
1) Inputs - a factor of production, a resource employed to produce goods and services.
2) Outputs – the final good or service produced for the purpose of consumption.
b. Give illustrations of investment in equipment and technology and explain their relationship to economic growth
- Productivity is one of the most closely watched indicators of long-term economic prospects.
- Rising productivity is the key to making possible permanent increases in the standard of living
- Changes in technology are the only source of permanent increases in productivity
c. Give examples of how investment in education can lead to a higher standard of living
- The more education you get, the more money you are likely to earn.
- Improvements in education, such as college, training, occupations, etc. improve human capital and
subsequently improve their marketability in the economy. This can lead to higher pay and standard of living.
Microeconomic Concepts
SSEMI1 The student will describe how households, businesses, and governments are interdependent and interact
through flows of goods, services, and money. (pg. 30)
a. Illustrate by means of a circular flow diagram, the Product market; the Resource (factor) market; the real flow of
goods and services between and among businesses, households, and government; and the flow of money.
- Circular Flow Model
Important points:
1. The economy consists of two sectors: households and firms.
2. The product market is where consumers go to buy goods and services and firms go to sell.
3. The factor market represents the market where firms hire and households bring their f.o.p., namely labor.
SSEMI2 The student will explain how the Law of Demand, the Law of Supply, prices, and profits work to determine
production and distribution in a market economy.
a. Define the Law of Supply and the Law of Demand.
1) Law of Supply (pg. 101) – as prices rise, producers will increase production, as the fall they will decrease
production.
2) Law of Demand (pg. 79) – as prices fall, consumers will purchase more, as they increase they purchase less.
b. Describe the role of buyers and sellers in determining market clearing price (equilibrium price) (pg. 125)
i.
Consumers’ purchases indicate to the supplier what to produce and how much. Where there is balance in
the QD and QS will be the market clearing price/equilibrium price.
c. Illustrate on a graph how supply and demand determine equilibrium price and quantity (pgs. 125 – 131).
Important points:
- Price of the item on the y – axis (differs, but always the price of the item)
- Quantity of item on x (this is where you can tell what is being sold)
- Make sure you can differentiate between a change in Demand and Supply (shift – things not having to do with price
change of the actual product) and change in quantity demanded and supplied (movement along because of price
change)
- Increase in D/S shift to the right
- Decrease in D/S shift to the left
-
In panel (a), there is a surplus. Because the market price of $2.50 is above the equilibrium price, the quantity
supplied (10 cones) exceeds the quantity demanded (4 cones).
Suppliers try to increase sales by cutting the price of a cone, and this moves the price toward its equilibrium level.
In panel (b), there is a shortage. Because the market price of $1.50 is below the equilibrium price, the quantity
demanded (10 cones) exceeds the quantity supplied (4 cones).
With too many buyers chasing too few goods, suppliers can take advantage of the shortage by raising the price.
Hence, in both cases, the price adjustment moves the market toward the equilibrium of supply and demand
d. Explain how prices serve as incentives in a market economy (pg. 140) – high prices are a signal for suppliers to
increase production and for consumers to buy less. Low prices are a signal for consumers to buy and suppliers to
cut back on production
SSEMI3 The student will explain how markets, prices, and competition influence economic behavior.
a. Identify and illustrate on a graph factors that cause changes in market supply and demand.
- Determinants of Demand (pgs. 86 – 88):
What Causes a Shift in Demand?
Consumer
Consumer Tastes and
Consumer Income
Population
Price of Related Goods
Expectations
Advertising
Income goes up,
If consumers think
Population increases
Consumer’s change
Complementary and
consumers will buy
that prices, economy, the number of
over time the things
Substitute items can
more shifting demand technology, etc., will
consumers and can
that they want. As
have an effect on
to the right. Goes
change in the future
shift demand to the
they change their
what consumers will
down, consumers will this will have an effect right. Decreases shift
tastes, their demand
purchase and increase
buy less shifting
on their consumption to the left
shifts to the right or
the demand for
demand to the left.
today.
the left
products.
-
Determinants of Supply (pgs. 116 – 120):
Effects of Rising
Costs
Input costs can
have a major
effect on the
production and
supply of goods
and services.
Gas prices can
limit the services
of a landscaper or
paper delivery
person.
Technology
Increases in the
ability to produce
because of
technological
advances can shift
the supply curve
to the right.
Breakdowns in
technology can
shift it to the left.
What Causes a Shift in Supply?
Subsidies
Taxes
Government
payments to firms
can act as an
incentive to
produce more,
which can affect
supply. If
government
removes subsidies
the curve will shift
left.
Government
taxation towards
firms can act as an
incentive to
produce, which
can affect supply.
If government
removes taxes the
curve will shift
left, increases
shift right.
Future
Expectations
How suppliers
view the future of
the economy will
affect their
production of
inventory today. If
they think the
economy is strong
they will increase
production today.
Vice versa.
Number of
Suppliers
Firms increase
whenever their
profit is to be
made. They
decrease
whenever profit is
reduced. Both will
shift the curve to
the right or the
left.
c. Explain and illustrate on a graph how price floors create surpluses and price ceilings create shortages.
-
Price floors are a legal minimum that a firm can pay for a good or service and can cause a surplus. Minimum wage is a
good example of a price floor.
Price ceilings are a legal maximum that a firm can charge for a good or service and can lead to shortages. Rent ceilings
and price gouging are good examples.
d. Define price elasticity of demand and supply
- Elasticity of demand (pg. 90) – is the responsiveness of the consumer to a price change in terms of quantity
demanded. If there is a big response, then it is considered elastic; small inelastic.
- Elasticity of supply (pg. 104) - is the responsiveness of the firm to a price change in terms of quantity
supplied. If there is a big response, then it is considered elastic; small inelastic.
SSEMI4 The student will explain the organization and role of business and analyze the four types of market structures in
the U.S. economy.
a. Compare and contrast three forms of business organization—
1) Sole proprietorship - is a type of business entity that is owned and run by one individual and in which there
is no legal distinction between the owner and the business.
 It is the easiest business organization to start
 The owner receives all profits and has unlimited responsibility for all losses and debts.
 Every asset of the business is owned by the proprietor and all debts of the business are the
proprietor's.
2) Partnership - is an arrangement where 2 or more parties agree to cooperate to advance their
mutual interests.
 It is also very easy to start
 Partnerships offer more capital as well as more diverse ideas
 The downside to a partnership is that it can lead to conflict
3) Corporation - is created under the laws of a state as a separate legal entity that has privileges and liabilities
that are distinct from those of its members
 The main advantage of a corporation is the limited liability of the shareholders and workers for the
company.
Three Major Economic Systems
1. Market. This is also called a capitalistic or free-market system. In a market system, private individuals and firms
control all resources and the price and quantity of all goods are determined by the interaction of demand and
supply in unrestricted, open markets. Ownership of property and goods is determined in the private sector and the
government does nothing to interfere with any market. Instead, this system relies on the belief that a market
system naturally leads to efficient results (called the “invisible hand”), which theoretically correct any inequalities in
resource allocation. Adam Smith used the phrase “invisible hand” in his 1776 book entitled Wealth of Nations. Even
though his book is as old as the United States, the theories he proposes are still relevant in today’s economy. The
United States is very market-oriented, but it is not a purely capitalistic system. One problem with market
economies is that the accumulation of wealth can be uneven. Under this system some people might become very
rich while others might remain poor. In the United States the government intervenes in the economy so that there
is a mechanism to take care of the poor. Poverty, however, is not the only problem that may emerge if the
government is completely uninvolved in markets. Other problems with unregulated activities include the
elimination of competition (as monopolies would be free to exist and expand), inefficient public services, and
outright theft.
2. Command. A command economy is the opposite of a market economy. In this case the government commands all
markets, determining what to produce, how to produce, and for whom to produce. Centralized planning
committees take into account all the resources a nation has to offer (people, land, capital), and then set up an
economic system to produce this predetermined mixture of goods and services. Since the government is in charge
of everything, citizens should all receive equal amounts of basic goods and services. In theory, this means that there
should be no problems with high unemployment or poverty. In a command economy, the government is supposed
to provide for its citizens. A command economy may work in a simple society with only a small number of people.
Yet today’s economies are often too complex for a committee to decipher. For this reason, command economies
often produce a set of goods and services that is different from what its population really wants, leading to
shortages of needed goods and surpluses of others. Also, since there is no private ownership, people have little
incentive to work hard. Because the government manages all basic economic decisions in a command economy,
personal liberties and freedom are not as great as they are in a market economy. The former USSR was an example
of a command-dominated economy. The fact that this country collapsed economically has led many economists to
question the long-term viability of command economies.
3. Traditional. A traditional economy maintains a status quo, deciding that if something worked for one generation, it
can work for the next as well. The static nature of a traditional economy can allow it to continue for long periods,
but its inability to change can also stifle progress and economic growth. The global economy has rapidly changed
over the past hundred years and this has left many traditional economies far behind.
4. Mixed. While these three systems describe theoretical concepts of how an economy might function, in the real
world most economies blend two (or even all three) of these systems. For instance, while China is considered a
command economy, they have rapidly begun to incorporate many aspects of a market structure into their
economy. Likewise, while the United States is considered to have one of the most capitalistic economies in the
world, the government still intervenes in some markets. Therefore, there is a fourth economic system known as a
Mixed economy. This is simply a way of naming an economy that incorporates aspects from different economic
systems.
b. Explain the role of profit as an incentive for entrepreneurs (pgs. 52-53) – profit is the primary goal of any
entrepreneur. It exists most plainly in a market-style economy and is the driving force for a capitalist system.
c.
Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.
1) Monopoly (pg. 156)
a. One firm
b. Complete barrier to entry
c. Total control over price
d. One product
2) Oligopoly (pg. 169)
a. 2-3 firms
b. High barrier to entry
c. Control majority of output
d. Similar/identical products
3) Monopolistic Competition (pg. 166)
a. Many Firms
b. Few artificial barriers to entry
c. Slight control over price
d. Differentiated products
4) Perfect (Pure) Competition (pg. 151)
Four Conditions of Perfect (Pure) Competition:
a. Many Buyers and Sellers
b. Identical Products
c. Informed Buyers and Sellers
d. Free Market Entry and Exit
Macroeconomic Concepts
SSEMA1 The student will illustrate the means by which economic activity is measured.
a. Explain that overall levels of income, employment, and prices are determined by the spending and production
decisions of households, businesses, government, and net exports.
1) GDP = C+I+G+NX
b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation,
stagflation, and aggregate supply and aggregate demand.
1) Gross Domestic Product (301) - the total market value of all goods and services, produced within a country’s
borders in a given period of time, C+I+G+NX.
1) Economic Growth (310) - increasing the amount of goods and services available from period to period as
measured by GDP. Economic growth is enabled by increases in productivity, which lowers the inputs (labor,
capital, material, energy, etc.) for a given amount of output.
2) Unemployment (331) - occurs when people are without jobs and they have actively sought work within
the past four weeks. Does not include homemakers, retired, underemployed, or discouraged workers.
3) Consumer Price Index (339) - a measure of the average change over time in the prices paid by urban consumers
for a market basket of consumer goods and services.
4) Inflation (338) – a general increase in the price of goods and services as measured by CPI.
5) Stagflation (311) – inflation in the economy combined with a recession.
6) Aggregate Supply (307) – the sum of all goods and services produced within a country at a given time at a
particular price level.
7) Aggregate Demand (307) – the sum of all goods and services demanded within a country at a given time at a
particular price level.
Aggregate Supply and Demand Graph


AD = sum of all consumption on new goods and services by households, businesses, government and foreign
entities
AS = sum of all production at a variety of price levels.
c. Explain how economic growth, inflation, and unemployment are calculated.
1) Measuring economic growth (318) – quarterly changes in C+I+G+NX.
2) Calculating inflation (340) – inflation rate = present year CPI – previous year CPI/previous year CPI x 100
3) Calculating the unemployment rate (334) formula = total number unemployed/labor force
d. Identify structural, cyclical, and frictional unemployment (pgs. 331 – 333)
1) Structural unemployment – the type of unemployment that is a result of a lack of skills necessary to meet the
needs of labor demands in the marketplace.
2) Cyclical unemployment – is the result of downturns in the economy due to changes in the business cycle.
3) Frictional unemployment – is the result of movement in the economy; when people change locations, reenter
the labor force after a period of time, or graduate and enter the labor force.
e. Define the stages of the business cycle, include peak, contraction, trough, recovery, expansion as well as recession
and depression (310 – 311).
1) Peak – the highest point in the business cycle, when GDP stops rising.
2) Contraction - when GDP begins to decline.
3) Trough - the lowest point in the business cycle, when GDP stops declining.
4) Recovery - the phase in between the trough and expansion. The economy begins to grow again.
5) Expansion – GDP begins to rise and the economy experiences growth.
6) Recession - 2 consecutive quarters of decline as measured by GDP.
7) Depression – a prolonged contractionary market. 8 quarters of consecutive decline as measured by GDP
f. Describe the difference between the national debt and government deficits (pg. 405)
1) Government deficit – when the government has more spending than it does tax revenue for one year (currently
around 1.1 trillion).
2) National Debt – the combined borrowing throughout the history of the U.S. economy (currently around 15
trillion).
SSEMA2 The student will explain the role and functions of the Federal Reserve System.
a. Describe the organization of the Federal Reserve System (416 – 418).
1) Federal Reserve System – was created in 1913. It is nicknamed the FED. Has a public private structure. 7 board
of governors that work out of Washington, D.C. 12 regional district banks. Ben Bernanke is the current
chairmen of the Fed. A Federal Open Market Committee (FOMC) that determines whether to increase or
decrease the money supply.
b. Define monetary policy (417) – regulation of the money supply by policymakers from the Federal Reserve.
c. Describe how the Federal Reserve uses the tools of monetary policy to promote price stability, full employment,
and economic growth (425 – 429).
1) Required Reserve Ratio – RRR is the required percentage (10% in the U.S.) that banks must hold on M1
deposits. The Fed can increase or decrease this amount in order to slow or speed up the money supply.
2) Discount Rate - is the percentage of interest that member banks must pay back the FED as the lender of last
resort.
3) Open Market Operations – the most commonly used tool of monetary policy; includes the buying and selling of
government bonds by the FED to member banks in order to increase/decrease the money supply.
SSEMA3 The student will explain how the government uses fiscal policy to promote price stability, full employment,
and economic growth.
a. Define fiscal policy (387) – refers to the U.S. federal government’s tools to affect the economy. They can
increase/decrease taxes or increase/decrease government spending.
b. Explain the government’s taxing and spending decisions (387 – 390).
1) Federal Budget – each year the federal government must pass a budget in Congress, signed by the President,
which indicates tax revenue and prospective spending.
2) Expansionary Fiscal Policies – fiscal policy adopted by the government to expand the economy; cut taxes or
increase government spending.
3) Contractionary Fiscal Policies – fiscal policy adopted by the government to contract the economy; raise taxes or
decrease government spending.
International Economics
SSEIN1 The student will explain why individuals, businesses, and governments trade goods and services.
a. Define and distinguish between absolute advantage and comparative advantage (443 – 444).
1) Absolute advantage - the ability of a party (an individual, or firm, or country) to produce more of a good or service
than competitors, using the same amount of resources.
2) Comparative advantage - refers to the ability to produce a particular good at a lower opportunity cost.
b. Explain that most trade takes place because of comparative advantage in the production of a good or service (445).
- Countries can benefit through specialization and trade. One country can specialize on something they do well, while
the other country can focus on what they do well.
- If those countries have a comparative advantage then they will experience gains from trade.
c. Explain the difference between balance of trade and balance of payments (462).
1) Balance of trade - is the relationship between a nation's imports and exports.
2) Balance of payments – the payments and receipts of the residents of the country, in their transactions with
residents of other countries.
3) Trade Surplus – a nation’s exports are greater than their imports.
4) Trade Deficit – a nation’s imports are greater than their exports.
SSEIN2 The student will explain why countries sometimes erect trade barriers and sometimes advocate free trade.
a. Define trade barriers as tariffs, quotas, embargoes.(449 - 450).
1) Trade barriers - are government-induced restrictions on international trade.
2) Tariffs – tax on imported goods.
3) Import Quota – limit on the amount of goods imported from other countries.
4) Voluntary Export Restraint – limit on the amount of goods exported to other countries.
5) Embargo - partial or complete prohibition of commerce and trade with a particular country, in order to isolate it.
b. Identify costs and benefits of trade barriers over time (450 – 451).
1) Costs – domestic industry and jobs. For instance, many firms choose to take their manufacturing plants to other
countries in order to lower their operating costs. This can lead to a decline in jobs and industry.
2) Benefits - Free trade consists in few or no limits on trade between countries. Who would benefit? A good
example for this topic would be us Americans; it would enable more goods and services to reach American
consumers at lower prices.
c. List specific examples of trade barriers (449 – 451)
- Tariffs, import quota, voluntary export restraints, embargos.
d. List specific examples of trading blocs such as the EU, NAFTA, and ASEAN.
1) EU – European Union. A collection of countries in Europe that universalize their currency, the Euro.
2) NAFTA - North American Free Trade Agreement, is an agreement between the U.S., Mexico and Canada to reduce
and eventually eliminate trade barriers.
3) ASEAN - the Association of Southeast Asian Nations, is a geo-political and economic organization of 10 countries
located in Southeast Asia
e. Evaluate arguments for and against free trade (452).
1) Protectionism - is the economic policy of restraining trade between states through methods such as tariffs on
imported goods, restrictive quotas, and a variety of other government regulations designed to allow (according to
proponents) "fair competition" between imports and goods and services produced domestically.
- This policy contrasts with free trade, where government barriers to trade and movement of capital are kept
to a minimum. In recent years, it has become closely aligned with anti-globalization. The term is mostly
used in the context of economics, where protectionism refers to policies or doctrines which protect
businesses and workers within a country by restricting or regulating trade with foreign nations.
SSEIN3 The student will explain how changes in exchange rates can have an impact on the purchasing power of
individuals in the United States and in other countries.
a. Define exchange rate (458) - is the rate at which one currency will be exchanged for another. It is also regarded as the
value of one country’s currency in terms of another currency.
b. Locate information on exchange rates (pg. 458 – 459).
c. Interpret exchange rate tables (458 – 459).
d. Explain why, when exchange rates change, some groups benefit and others lose.
1) Appreciation – the increase in the value of a currency. This increases the purchasing of one currency against
another.
2) Depreciation - the decrease in the value of a currency. This decreases the purchasing of one currency against
another.
Personal Finance Economics
SSEPF1 The student will apply rational decision making to personal spending and saving choices.
a. Explain that people respond to positive and negative incentives in predictable ways (31).
1) Incentive - something that incites or tends to incite to action or greater effort, as a reward offered for increased
productivity.
2) Positive - an economic, legal or institutional measure designed to encourage beneficial activities.
3) Negative - measures or disincentives are mechanisms designed to discourage activities that are harmful to the
economy.
b. Use a rational decision making model to select one option over another (11).
- Jesse’s best use of his money is a purchase of Jeans.
- The worse use of his money is Concert tickets.
c. Create a savings or financial investment plan for a future goal.
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 (515).
b. Explain reasons for the spread between interest charged and interest earned.
1) The goal of a financial intermediary, or a business that loans money (bank, etc.), is to make a profit.
In order to make a profit one method they use is to charge more to loan money than they pay on deposits.
 Example - a savings account might offer a 1% return, while a loan on a mortgage might be 5%.
 The difference between the interest charged and interest earned is profit for the bank.
c. Give examples of the direct relationship between risk and return (275).
1) Risk – the level of uncertainty of an investment.
2) Risk and Return – the higher the risk, the higher potential return. The lower the risk, the lower the potential return.
d. Evaluate a variety of savings and investment options; include stocks, bonds, and mutual funds (507 – 509).
1) Stock – partial ownership of a company through the purchase of shares. From low to high risk investment.
2) Bond – essentially an IOU to the government or corporation, with a fixed rate of interest. Generally considered a
safe, non-risky investment.
3) Mutual Fund – pools money from many investors to buy stocks, bonds, short-term money market instruments,
and/or other securities. Generally considered a low-risk, diversified investment strategy.
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 (343 – 344).
1) Purchasing Power the number of goods/services that can be purchased with a unit of currency.
2) Unanticipated inflation – if someone is living on a fixed income and prices rise, their purchasing power diminishes.
b. Define progressive, regressive, and proportional taxes (361).
1) Proportional - a tax imposed so that the tax rate is fixed. The amount of the tax is in proportion to the amount
subject to taxation.
2) Progressive - is a tax by which the tax rate increases as the taxable base amount increases. “The more you make the
more they take”.
3) Regressive - a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation
increases.
c. Explain how an increase in sales tax affects different income groups (360).
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The poor bear the burden of the regressive tax.
SSEPF4 The student will evaluate the costs and benefits of using credit.
a. List factors that affect credit worthiness (512 – 513).
1) Capacity - Capacity refers to the ability of the individual to generate revenues in order to pay back the loan.
2) Capital – borrowers accumulation of wealth measured in net worth and assets.
3) Character - Character refers to the financial history of the borrower; that is, whet kind of "financial citizen" is this person or
business? Character is most often determined by looking at the credit history, particularly as it is stated in the credit score (FICO
score).
-Factors that will affect your credit score include:
1. Late payments
2. Delinquent accounts
3. Available credit
4. Total debt
4) Collateral – something of value that the borrower can give to the lender if they default on the payment.
b. Compare interest rates on loans and credit cards from different institutions.
-The Starwood preferred card has the best offer.
c. Explain the difference between simple and compound interest rates (261).
1) Simple – interest is earned on principal only.
2) Compound – interest that is earned on principal and any accumulated interest.
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 (pg. 525).
1) Automobile - is insurance purchased for cars, trucks, motorcycles, and other road vehicles. Its primary use is to
provide financial protection against physical damage and/or bodily injury resulting from traffic collisions and
against liability that could also arise.
2) Health - insurance against the risk of incurring medical expenses among individuals.
3) Life – a contract between the policy owner and the insurer, where the insurer agrees to pay a designated
beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death.
4) Disability - a form of insurance that insures the beneficiary's earned income against the risk that disability will make
working (and therefore earning) impossible.
5) Property - homeowner's insurance, is the type of property insurance that covers private homes. It is an insurance
policy that combines various personal insurance protections, which can include losses occurring to one's home, its
contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as
well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the
policy territory.
b. Explain the costs and benefits associated with different types of insurance; include deductibles, premiums, shared
liability, and asset protection (525).
1) Deductible – the amount that a consumer has to pay before the insurance company pays their part.
2) Premium – the amount that a consumer has to pay to the insurance company for coverage.
3) Shared Liability - where two or more persons are liable in respect of the same liability, in most common law
legal systems Asset Protection.
4) Asset Protection – refers to a protecting the assets of individuals and business entities.
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.
1) Communication Skills, leadership skills, problem solving, ability to self-manage and be self-motivated, etc.
b. Explain the significance of investment in education, training, and skill development.
1) Human Capital – the skills, ability, training and education of workers. As their human capital increases, so too does
the ability to become more marketable in the workforce.