Personal Finance Economics

1
Personal Finance Economics
Personal Finance Economics
Unit 5 Chapters 8-11
Personal Finance Economics

• Unit 2 Chapters 10-11

2
Essential Questions

• 1) How will varying degrees of knowledge, skills
  and abilities affect earnings?
• 2) How are banks and financial institutions
  important to the economy?
• 3) How do changes in tax rates and interest rates
  respectively affect individuals spending and
  saving behavior?
• 4) How can the use of credit impact personal
  financial health?
• 5) Why do individuals carry different types of
  insurance?

3
Labor

• Civilian Labor Force (CLF)
• Men and women 16 and up not in the military,
  prison, or otherwise institutionalized who are
  working or actively looking for a job.
• Who does this not include?
• The number of people in the CLF is determined by
  the Bureau of Labor Statistics (BLS)
• They also determine the unemployment rate
• Good rate 4-6
• Current Rate?
• http//www.bls.gov/cps/

4
Types of Labor

• Unskilled
• Lack training to operate specialized machines
• ditch diggers
• Semi-Skilled
• Workers with some mechanical skills
• Floor polisher, cashier
• Skilled
• Operate complex equipment
• Carpenters, computer technicians, crane operators
• Professional
• Higher level skills
• Doctors, lawyers, engineers, teachers
• No level competes with any other
• People tend to stay at the same level their whole
  lives
• Cost of education and training
• Lack of opportunities
• Lack of initiative
• Supply and demand of each level determines wages
• Could also be caused by

5
Wage Determination

• Theories
• Traditional Theory of Wage Determination
• Based on supply and demand
• People will be paid the equilibrium wage rate
• Exceptions racism, sexism, uninformed buyers and
  sellers
• Theory of Negotiated Wages
• Good negotiators may get better than equilibrium
  price
• Unions
• Strikes, pickets, and boycotts
• Employer strategies lockout or a company union

6
Wage Determination cont.

• Regional wage differences
• Higher supply or demand in certain regions
• Cost of living
• Location attractive?
• Wage between genders and race
• Glass Ceiling
• Barrier that prevents minorities and women from
  advancing
• Ways to get around it
• Comparable Worth
• The idea that some jobs in society have equal
  value and should receive equal pay
• Set Aside Contracts
• The government can give a certain percentage of
  contracts to businesses owned by women and
  minorities.
• Both the problems and the solutions violate laws
  of economics and lead to inefficiencies in the
  market for labor.
• Gender gap reading

7
Business Organizations

• Sole Proprietorship
• Owned and run by one person
• Strengths
• Easy to start, make decisions quickly and easily,
  owners do not share profits, personal freedom, no
  business taxes
• Weaknesses
• Unlimited liability, tough to raise capital,
  difficult to be efficient, limited experience,
  tough to attract employees
• Partnerships
• Owned and run by more than one person
• General
• Everyone shares in management and finance of the
  company
• Limited
• Some manage and pay while others just pay
• Strengths
• Easy to start, make decisions quickly, easier to
  efficient, easier to attract employees, no
  business taxes
• Weaknesses
• Each partner is responsible for others, conflict,
  limited life span
• Corporations
• Business that has shareholders who own stock in
  the company. Recognized as having the rights of
  an individual by the government.
• The government grants a charter that specifies
  the number of stock

8
Corporations

• Combining Corporations
• Horizontal Merger
• Two or more firms in the same market join.
• Ex. Sirius and XM Radio
• Vertical Merger
• Two or more firms involved in different stages of
  producing a good or service join.
• Ex. USX
• Conglomerate
• More than 3 businesses making unrelated products
  all owned by the same company
• 3M, Unilever
• Multinational Corporation
• Corporations that make and sell products
• all over the world

9
Savings

• Disposable Income Consumption Savings
• Savings Disposable Income Consumption
• Saving
• The absence of spending
• For investment to occur, people must save
• Investing
• The act of redirecting resources from being
  consumed today so that they may create benefits
  in the future.
• Saving Investing
• How does a bank make money?
• Banks lend saved funds and charge a higher
  interest rate on loans that they do on savings.

10
Financial System

• The financial system is a way to transfer savers
  dollars to investors.
• When you save, you receive a receipt called a
  financial asset. Ex. Bond, bank statement
• Financial assets are claims on the property and
  income of the borrower. Savers use these to prove
  a payment is expected if the borrower defaults on
  a loan.
• Households and businesses provide some funds
  directly to borrowers through bonds, but mostly
  they supply funds through financial
  intermediaries.
• Financial intermediaries are institutions such as
  banks, life insurance companies, and pension
  funds.
• Financial intermediaries Handout
• Money is then loaned to borrowers