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E. Napp Banking Today In this lesson, students will be able to identify important terms concerning banking. Students will be able to identify and/or define the following terms: Principal Interest Default
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E. Napp The money supply is all the money available in the United States.
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E. Napp Cash and Checks are examples of the money supply. They have liquidity. Liquidity means it can be used easily as money.
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E. Napp Savings accounts and mutual funds, bonds, etc...are also part of the money supply. These assets must be converted to cash before they are used.
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E. Napp A bond must be converted to cash before it can be used.
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E. Napp Interest When money is deposited in a bank, the customer receives interest on the money. A person who borrows money must pay interest. Interest is the price of borrowed money.
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E. Napp Interest is the price of borrowed money.
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Default When a person fails to pay back a loan, he has defaulted on the loan. Defaulting on a loan leads to bad credit and higher interest rates in the future. By defaulting, a person ruins his reputation for repaying a loan. Bankruptcy: A legal declaration of an inability to pay debt.
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E. Napp Defaulting on a loan leads to bad credit and higher interest rates in the future.
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E. Napp Principal and Interest There are two parts to any loan: principal and interest. The principal is the actual amount borrowed. The interest is the money a customer pays above the principal for the opportunity to borrow money.
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E. Napp A mortgage is a loan on real estate.
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E. Napp By learning the language of banking, a person makes better choices.
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Taxes E. Napp
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Tax A regressive tax is a tax where lower- income entities pay a higher fraction of their income in taxes than do higher- income entities.regressive tax E. Napp
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A progressive tax is a tax where lower- income entities pay a lower fraction of their income in taxes than do higher-income entities.progressive tax E. Napp
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A proportional tax (sometimes called a flat tax) is a tax where everyone, regardless of income, pays the same PERCENTAGE of income in taxes.flat tax E. Napp
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Questions for Reflection: What is the money supply? How does M1 differ from M2? Provide an example of an object that has liquidity. Why does it harm a person to default on a loan? What does a loan consist of? How does principal differ from interest?
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