NOTES INTEREST RATES, INVESTMENTS, & DEBT

 Simply put…the cost of money  This amount changes EVERYDAY  Consumers, businesses, and governments that borrow money are affected 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 affects 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