NOTES

INTEREST RATES, INVESTMENTS, &

DEBT

Simply put…the cost of money This amount changes EVERYDAY

Consumers, businesses, and governments that borrow money are aff ected by interest rates. Saver/Investor – EARN interest money Borrowers – PAY interest money

Common Types of Interest Rates Prime Rate – rate banks make available to their best customers Discount Rate – rate banks are charged to borrow from the Federal

Reserve Mortgage Rate- the amount consumers pay to borrow for a new home Certificate of Deposit(CD) Rate- rate awarded for saving your money

INTEREST RATES

Investment activities promote economic growth

Capital Projects – business spending for items that will be used over a long period of time.

Land, buildings, equipment

Comes from 3 Sources Personal Savings

The money we save in personal accounts helps fund business loans for capital project.

Low Saving in the US causes concern for the future The Stock Market

Stock – represents ownership in a company Companies issue stock (partial ownership) to raise money

The Bond Market Bond – debt for a company…basically an IOU If you purchase a bond, you lent the company money

They will pay you back plus interest

INVESTMENTS

Borrowing by consumers, businesses, and government also aff ects the economy. Consumer Debt

Credit card debt, home loans, auto loans Business Debt

Loans, bonds, mortgages Government Debt

Federal, state, and local services cost $ Budget surplus – government makes more than it spends’ Budget deficit – government spends more than it makes National debt – total amount owed by the government

DEBT