Basics of Personal Finance

Study Notes

This study guide provides information about economics, including definitions, examples, and important concepts.
Students should document their answers to questions on a separate sheet of paper, a word document, or directly in the study guide.
Completed work should be returned to the teacher.
Students can contact their teacher with questions.

Economics is the study of making choices, including everyday decisions and economic systems.
Economics considers how to allocate limited resources (time, money, etc).
Economics involves understanding the rationales behind decisions, whether individual or national.
Economics combines scientific, social scientific, and even artistic approaches to understanding human behavior.
Economists may have different opinions, but the core of economics is informed decision-making.
Economics encompasses microeconomics (individual choices) and macroeconomics (overall economy).

Science plays a role in economies
The COVID-19 pandemic affected markets by impacting supply and demand.
Demand: As price increases, demand decreases (downward-sloping).
Supply: As price increases, supply increases (upward-sloping).
Equilibrium Price: Where supply and demand intersect, balancing prices and availability.
Market Equilibrium: Stable prices when supply and demand are balanced.

Budgeting is important for managing personal finances.
Budgeting involves tracking income, expenses, savings, debt, and financial goals.
Budgeting should account for fixed (regular) and variable (irregular) expenses.
Planning for savings is an important component of personal budgeting.
Investing involves allocating money to assets like stocks or bonds, with a goal of growing wealth and outpacing inflation.

Gross Domestic Product (GDP): Measures the total value of a nation's goods and services produced within a given period (e.g., quarter or year).
GDP calculation involves adding the spending of different groups (consumption, investment, government spending, net exports).
Tracking GDP is a helpful way to understand economic health and measure growth and/or contraction.
Economic expansions and contractions follow a business cycle.

Governments play crucial roles in economic stability, which include providing legal frameworks, competing and controlling markets, and managing resources.
Governments also aim to redistribute income by creating programs, providing transfers or benefits to individuals and groups.
Public goods: Goods and services that benefit everyone, but are difficult for private businesses to provide or finance due to non-rivalry and non-excludability.

International Trade: Countries buy and sell goods and services from each other.
Comparative advantage: Countries specialize in producing goods and services they can produce efficiently and cheaply.
Exchange rates: The value of one country's currency compared to another.
Tariffs: Taxes on imported goods.
Quotas: Limits on the amount of a specific good that can be imported.
Subsidies: Government payments to businesses to reduce costs and improve competitiveness.

Credit: Allows access to goods and services now, with repayment at a later time.
Debt: The amount of money owed.
Types of credit and debt (revolving and installment).
Managing credit and debt involves responsible borrowing, consistent payment, avoiding high-interest loans, and maintaining a healthy credit score.