1. 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

2. E. Napp The money supply is all the money available in the United States.

3. E. Napp Cash and Checks are examples of the money supply. They have liquidity. Liquidity means it can be used easily as money.

4. 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.

5. E. Napp A bond must be converted to cash before it can be used.

6. 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.

7. E. Napp Interest is the price of borrowed money.

8. 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.

9. E. Napp Defaulting on a loan leads to bad credit and higher interest rates in the future.

10. 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.

11. E. Napp A mortgage is a loan on real estate.

12. E. Napp By learning the language of banking, a person makes better choices.

13. Taxes E. Napp

14. 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

15. 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

16. 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

17. 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?