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Summary Review

Summary Review. Part I: 5 lectures & Guide to Personal Finance Part II: Ch’s 1-4, O’Sullivan & Sheffrin. Part I. Buying a Car: Credit Buying a House Financial Planning Investment. Cost of Using a Car for Several Years. Depreciation in car’s market value Interest

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Summary Review

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  1. Summary Review • Part I: 5 lectures & Guide to Personal Finance • Part II: Ch’s 1-4, O’Sullivan & Sheffrin

  2. Part I • Buying a Car: Credit • Buying a House • Financial Planning • Investment

  3. Cost of Using a Car for Several Years • Depreciation in car’s market value • Interest • opportunity cost of your money

  4. Mortgage Loans/Fixed Rate • Pay back the loan with declining balance of principal owed • build equity(ownership) slowly • Pay interest(price of credit) • frontloaded

  5. Financial Planning: Meeting Future Needs in Life • Family Formation(significant other) • term insurance(protection against unforeseen death & loss of earnings) • Housing • space • asset: building equity(ownership) • Retirement

  6. Financial Planning: Meeting Future Needs in Life(continued) • Retirement • Old Way: Social Security/Pension Plan • insufficient income • IRA’s/Employer Plans[401(k);403(b)] • supplementary income

  7. Investment • Budget Your Expenditures • Tool: income-expense statement • Earn money(income) • Market value of your time: human capital • Your value of your time: your taste for leisure • Pay yourself first(save) • Invest: Strategies?(Seems Complex) • Focus Your Portfolio Choices: • cash: currency & checking account (SURVIVAL) • money market funds(Treasury Bills: 13 wk-1 yr) • bonds(Treasury Notes and Bonds: 2yr -30 yr) • stock(equity) index fund

  8. Investment(continued) • Invest: Strategies (Simplify!) • cash: little interest, but liquid(no waiting for $) • money market: more interest, relatively liquid • Treasury Notes (3 year or 5 year Note) • more risk unless: buy and hold • buy and hold(certain): get principal back plus interest • Stock(equity) Index Fund • market basket of stocks: diversified • buy and hold/ betting on growth of 11% per year on average • Track Your Wealth: Asset-Liabilities Stmt.

  9. Part II: Chapter One • Scarcity • Production Possibilities Curve • Economic way of thinking/Paradigm • describe the alternatives to choose among • value these alternatives • choose the best alternative

  10. Part II: Chapter Two • opportunity cost • marginal principal • diminishing returns • spillovers(externalities) • reality(real versus nominal value) • purchasing power • example: a $ today is not the same as a $ tomorrow & vice versa

  11. Part II: Chapter Three Firms Firms • Circular Flow Income Labor Supply Goods Demand Goods Households Households

  12. Chapter Three (continued) • absolute advantage • comparative advantage Student Bobby Student Abby 3 hours per chapter 1.5 hours per lab 1 hour per chapter 1 hour per lab Both Abby and Bobby are short of time 1 chapter per lab 1/2 chapter per lab Form a study group and trade knowledge Abby reads Bobby hacks Each Specializes

  13. Ch. Three ( continued) • Role of Government: federal-state-local • provide security(safe skies to safe streets) • enforce property rights and other laws • tax citizens to pay for these goods & serices • redistribute income

  14. Chapter Four demand/income, other prices price price quantity/year quantity/year demand demand price price supply quantity/year quantity/year

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