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population growth rates of the countries of the world. Economic Analysis How does the annual growth rate in China compare with that of Brazil? C URRENT W ORLD P OPULATION G ROWTH R ATES See StudentWorks™ Plus or glencoe.com. Source: World Bank Development Indicators Average annual change 3% and higher 2.5% – 2.9% 2.0% – 2.4% 1.5% – 1.9% 1.0% – 1.4% 0.5% – 0.9% 0.0% – 0.4% Less than 0% No data one percent by 2017. If the world population keeps growing at the rates shown in Figure 18.2, it will reach about 8 billion in 2027, and then hit 9 billion by 2045. Was Malthus Wrong? Population is growing at different rates around the world. As Figure 18.3 shows, industrialized nations have the lowest rates of population growth, while the poorer nations in the developing world tend to have the highest population growth rates. Malthus did not foresee the enormous advances in productivity that allowed a rising standard of living to accompany a growing population. He also did not foresee that families might choose to have fewer children. This is especially true for a number of industrialized countries, including Japan, Russia, and Germany, that have shrinking populations. Malthus’s predictions may not have been entirely accurate for the industrialized countries, but they still have long-term consequences for all nations. Today, for example, population pressures in the developing world are causing problems for many industrialized countries, such as the United States, which is besieged by illegal immigrants from China, Mexico, and Haiti. Economic Incentives Economic incentives play a role in population growth. For example, children are relatively expensive to raise in an industrialized country. Medical costs at birth, health CHAPTER 18 Global Economic Challenges 511 renewable resource natural resource that can be replenished for future use hydropower power or energy generated by moving water biomass energy made from wood, peat, municipal solid waste, straw, corn, tires, landfill gases, fish oils, and other waste Hydropower Portugal is the site of the first wave farm to use Pelamis wave energy converters that were developed in Scotland. What are other sources of hydropower? insurance, larger homes, cars, and college expenses add to the cost of raising children. In addition, one parent bears an opportunity cost if he or she for
goes a career while staying home to raise the children. If a family wants to minimize these costs, as they might other costs, part of the answer is to have fewer children. The opposite happens in the developing world because children there are regarded as an asset. Medical expenses are minimal or nonexistent, insurance is rare, homes are often shared, and cars and college educations are seldom available. Even young children are likely to help with house work or farm work. Since developing countries do not have retirement programs like Social Security, parents tend to have many children in hopes that some of the children will care for them in their old age. The result is predictable. If children are an asset to the family rather than a cost, then parents will try to have as many children as they can. This explains the high rate of population growth in developing countries and the declining—or negative— rate of population growth in the developed world. Reading Check Explaining Why might Malthus have been wrong in his predictions? The Demand for Resources MAIN Idea Because of scarcity, societies need to conserve nonrenewable resources while finding efficient ways to harness renewable resources. Economics & You Do changes in gas prices affect your daily activities? Read on to learn how changes in gas prices affect the demand for alternative energy sources. Population pressures add to the depletion of many important resources. Some of these resources are in the form of raw materials, minerals, arable land, and energy. Energy is especially important because it is necessary for the production of the technological goods that make our lives more comfortable. Renewable Resources Economists recognize two general types of resources. One is a renewable resource, or natural resource that can be replenished for future use. Four main sources of renewable resources are used today. The renewable resource that contributes the most to our energy needs today is hydropower, power or energy generated by moving water. In the 1800s, hydropower propelled the mills and factories of the Northeast. The power was reliable, and its source—water—was abundant and free. Later, generators at the Hoover Dam and the Tennessee Valley Authority were completed to generate power on a much larger scale. Today, many countries are trying to harness the power of moving water found in ocean waves and tides. Another source is biomass, or energy made from wood and wood waste, peat, municipal solid waste, straw, corn, tires, landfill gases, fish oils, and other waste. While relatively new, this is the second most important form of renewable energy produced in the United
States today. An example of biomass is ethanol, or grain alcohol that is made from corn or other Ocean Power Delivery Ltd. crops. Ethanol is used to make gasohol—a fuel that is a mixture of 90 percent unleaded gasoline and 10 percent ethanol. Since 1998, many American cars have also been designed to run on E85, a mixture of 85 percent ethanol and 15 percent gasoline. The third-largest source of renewable energy is solar power, or energy that is harnessed from the sun. Solar power has never been effectively developed, however, and did not get much attention when the price of oil was low. While solar power holds much promise, it accounts for only a fraction of the renewable energy used today. The fourth-largest category of renewable energy sources is wind-generated electricity. Since the early 1980s, many wind farms have been built, each producing enough electricity to power a medium-sized city. California is the largest producer of windgenerated energy, but wind farms can be found in many other states as well. Nonrenewable Resources Most of the energy we use today comes from nonrenewable resources—resources that cannot be replenished once they are used. The major nonrenewable resource category—fossil fuels—is being consumed at an alarming rate and at current consumption levels may only last for a few more generations. Oil is the biggest nonrenewable energy source in use today, primarily because it was so inexpensive during much of the 1900s. Oil also is much more convenient to use than natural gas or coal. Natural gas and coal are tied for the second-largest nonrenewable energy source. Historically, natural gas was more difficult to transport and use than oil, so it did not become an important energy source until much later. Eventually inexpensive natural gas became popular as an industrial fuel, and many factories and industrial technologies were built around it. Coal was the first nonrenewable fuel to be used on a large scale, but oil and natural gas soon displaced it because they are easier to use. Still, coal is both inexpensive and plentiful. Nearly two-thirds of the world’s known coal deposits are in the United States, Russia, and China, with reserves estimated to last about 200 years. Nuclear energy is the next-largest and newest source of nonrenewable energy, accounting for nearly 8 percent of all energy Oil Refineries such as this one in France prepare oil for general use. What type of resource is oil? gasohol mixture of 90
percent unleaded gasoline and 10 percent grain alcohol, or ethanol nonrenewable resource resource that cannot be replenished once it is used Sami Sarkis/Getty Images CHAPTER 18 Global Economic Challenges 513 used in the United States. The future of nuclear power is uncertain, however, for a number of reasons. Cost is one reason. Nuclear reactors are expensive to build and maintain. Second, nuclear energy produces highly hazardous by-products which are difficult to dispose of safely. Finally, there is always some chance that a nuclear plant will fail, or that another accident would happen like the 1979 near-meltdown at Three Mile Island in Pennsylvania. The 1986 meltdown of the Chernobyl reactor in Chernobyl, Ukraine, served as another reminder of the possible dangers of nuclear power. These and other reactor shutdowns are all daunting problems, but safety issues need to be addressed and dealt with before nuclear power becomes more widespread. Energy Use in the United States Figure 18.4 shows the sources and uses of energy in the United States. About two thirds, or 67.5 percent of our energy, comes from domestic production in the form of coal, natural gas, crude oil, nuclear power, and other sources. Slightly less than one third, or 31.7 percent, is imported from abroad. Most of this energy is in the form of petroleum. The figure also shows that most of the energy we consume, or 82.2 percent of the total, is from fossil fuels such as coal, natural gas, and petroleum. Only a relatively small fraction comes from nuclear power and renewable energy resources. Finally, the figure shows that nearly onethird of our total energy is used in industry. Only about one-fifth of the energy, or 20.3 percent, goes to residential use. Nonmarket Conservation Efforts With resources becoming increasingly scarce, efforts are underway to find the best ways to use and preserve them. One way is to appeal to everyone’s sense of civic responsibility. For example, we can ask people to drive their automobiles less, to turn off the Figure 18.4 Energy Flows in the United States C o al 2 1.8 % Natural gas 18.6% Petroleum11.1% Liquidgas2.4% Fossil fuels 53.8% Domestic production 67.5% Nuclear electric power 7.9% Renewable energy 5.9% Petroleum 26.6% Other 5.1% See StudentWorks™ Plus or glencoe.com. Petroleum and other exports 4.3 % Commercial 16
.8% Industrial 31.9% Transportation 26.7% Coal 21.5% Natural gas 22.1% Petroleum 38.5% Fossil fuels 82.2% Imports 31.7% Nuclear electric 7.9% Renewable energy 5.9% Most of the energy used in the United States comes from nonrenewable sources. Slightly more than two-thirds is from domestic sources, and the rest is imported. Source: Energy Information Administration Economic Analysis What percentage of energy used in the United States is provided by petroleum? Numbers will not add up to 100% due to rounding. lights when they leave a room, or to adjust thermostats when they are not at home. Such measures have been tried, but generally they fail to work. Even the 55-mileper-hour speed limit, which was instituted to conserve gasoline, did not work. Not only did drivers routinely ignore the law, most individual states eventually repealed the lower speed limits. Markets and Price Incentives People seem to be much more responsive to changes in prices. When oil was cheaper before 1973, few countries were willing to devote large resources to retrieving it. In 1973, however, the OPEC oil embargo dramatically raised the price of oil. When the price increased sharply, many countries increased their production almost overnight. At the same time, interest in alternative energy sources soared, and countries poured billions into energy-research projects ranging from shale oil to solar power. By 1981 oil prices had dropped considerably because of a worldwide glut—a substantial oversupply—of oil. At the same time, a worldwide recession and efforts at energy conservation further reduced the demand for oil. Oil prices were also kept low after the first Gulf War in the early 1990s because some OPEC members increased production to replenish their financial reserves, which had been depleted during the war. Lower oil prices had several consequences. First, the search for alternative energy sources began to wane. Second, the exploration for new oil reserves slowed dramatically. Third, consumers changed AP Images Speed Limits When lower speed limits failed to reduce energy use, most states repealed them. Why was the 55-miles-per-hour speed limit introduced? their spending habits again, buying more large houses and low-mileage SUVs instead of fuel-efficient cars. By 2006 increasing demand caught up with stable supply, and energy prices shot up again. This price hike, in turn, renewed interest in conserving energy and stimulated the global search for alternative energy sources. In the end, the price system that
encourages people to conserve energy when oil prices are high does exactly the opposite when oil prices go down. High prices thus help conserve resources, while low prices tend to do the opposite. Reading Check Analyzing Why is the percentage of renewable energy sources in the United States relatively low? glut substantial oversupply of a product Skills Handbook See page R40 to learn about Analyzing Information. CHAPTER 18 Global Economic Challenges 515 pollution contamination of air, water, or soil by the discharge of a poisonous or noxious substance acid rain pollution in the form of rainwater mixed with sulfur dioxide to create a mild form of sulfuric acid Pollution Toxic run-off and air pollution can affect agriculture. What does the protective suit imply? Pollution and Economic Incentives MAIN Idea Pollution is a problem for society that can be controlled through legislation, fees, and permits. Economics & You Does your school have an environmental club? Read on to find what socie ties do to protect the environment. Economic incentives can help solve the global problem of pollution. Pollution is the contamination of air, water, or soil by the discharge of a poisonous or noxious substance. Most economists argue that the best way to attack the problem is to attack the incentives that caused pollution in the first place. The Incentive to Pollute Pollution does not occur on its own: it occurs because people and firms have an incentive to pollute. If that incentive can be removed, pollution will be reduced. For example, factories historically located along the banks of rivers so they could discharge their refuse into the moving waters. Factories that generated smoke and other air pollutants often were located. 516 UNIT 5 The Global Economy www.CartoonStock.com farther from the water, but their tall smokestacks still blew the pollutants long distances. Others tried to avoid the problem by digging pits on their property to bury their toxic wastes. In all three situations, factory owners were trying to lower production costs by using the environment as a giant wastedisposal system. From a narrow viewpoint, the reasoning was sound. Firms increase their profits when they lower production costs. Those who produce the most at the least cost make the most profits. The cost of pollution to society as a whole, however, is enormous. For example, acid rain—a mixture of water and sulfur dioxide that makes a mild form of sulfuric acid—falls over much of North America, damaging forests and rivers. Fertilizer buildup and raw sewage runoff poison ecosystems in other areas.
The damage caused by pollution is extensive, but it can be controlled. One way is through government standards passed by law. Another way is through economic incentives. Legislated Standards Legislated standards include laws that specify the minimum levels of purity for air, water, and auto emissions. These government standards can be effective, but they are generally inflexible. Once a standard is set, a firm has to meet it or cease production. Because of this, many firms lobby extensively to exempt their industry from pollution control standards. Congress has declared that all automobiles sold in the United States cannot exceed certain maximum emission standards. Once these standards have been set, the Environmental Protection Agency (EPA) tests random vehicles in every model line of cars. It also samples random cars on the road to ensure that they adhere to the emission controls. Another pollution-control program was the Superfund that Congress established in 1980 to identify and clean up some of the most hazardous waste sites in the country. The intent was to track down the original polluters and make them pay for the cleanup. When it was discovered that many of the original polluters had gone out of business and could not be forced to pay, the law was amended to force existing businesses to help with the cleanup costs. This was not popular with businesses because some firms were forced to pay for the cleanup of wastes that others left behind. Pollution Fees A more market-based approach is to charge firms in proportion to the amount of pollutants they release. Depending on the industry, the size of the tax would depend on the severity of the pollution and the quantity of toxic substances being released. A firm can then either pay the fees or take steps to reduce the pollution. For example, suppose a community wants to reduce air pollution caused by four factories, each of which releases large quantities of coal dust. A $50 tax on every ton of coal dust released into the air might be applied to each factory. Devices attached to the top of the factory’s smokestacks would measure the amount of dust released during a given period, and the factory would be billed accordingly. Under these conditions, some firms might choose to pay the $50 tax. Others, however, might decide to spend $10, $20, or $30 to clean up a ton of pollution. As long as it is cheaper to clean up the pollution than to pay the tax, individual firms will have the incentive to clean up and stop polluting. This tax approach does not try to remove all of the pollution, but it can remove a significant
amount. In addition, it provides flexibility that legislated standards lack by giving individual firms freedom of choice. Real-world examples of pollution fees are more complicated than this hypothetical example, but they all work the same way. In addition, firms that pay the tax also help defray some of the costs of the program, which is a relief to taxpayers. Tony Freeman/PhotoEdit Tradable Pollution Permits An expanded version of pollution fees is the EPA’s use of pollution permits— federal permits allowing public utilities to release specific amounts of emissions into the air—to reduce sulfur dioxide emissions at coal-burning electric utilities. Sulfur dioxide emissions from the pollution permit federal permit allowing a public utility to release pollutants into the air CAREERS Environmental Scientist The Work * Identify and eliminate sources of pollutants or hazards that affect people, wildlife, and their habitats * Analyze measurements or observations of air, food, water, soil, and other resources and make recommendations on how best to clean and preserve the environment * May design and monitor waste disposal sites, preserve water supplies, and reclaim contaminated land and water to comply with federal environmental regulations Qualifications * Master’s degree with a specialization in environmental or biological science, plus several years of experience in the field * Experience with computer modeling, data analysis and integration, digital mapping, remote sensing, and geographic information systems * Strong oral and written communication skills * Must pass a civil service examination Earnings * Median annual earnings: $51,080 Job Growth Outlook * Average Source: Occupational Outlook Handbook, 2006–2007 Edition CHAPTER 18 Global Economic Challenges 517 utility. In either case, one of the utilities has the incentive to clean up a ton of pollutants. The first set of pollution permits went on sale in March 1993 at the Chicago Board of Trade. The one-ton permits brought prices ranging from $122 to $450. The EPA issued additional permits in successive years, but it will issue fewer permits as time goes on, making them scarcer and more expensive. Ultimately, higher prices for the permits will give more utilities the incentive to spend larger amounts of money on antipollution devices. The system also has advantages for environmentalists who want utilities to reduce pollution at even faster rates. Several environmental groups have purchased pollution permits with their own funds, making them scarcer and therefore more expensive for the utilities. Reading Check Summarizing In which ways can governments control pollution? Pollution Permits In 2005 the European Union started to use tradable pollution control permits to control emissions. The supply of permits in the
first year was large—resulting in values of a one-ton permit ranging from 9.5 to 13 euros ($10 to $15). As fewer permits are issued in successive years, their price will rise. Student Web Activity Visit the Economics: Principles and Practices Web site at glencoe.com and click on Chapter 18— Student Web Activities for an activity on the Environmental Protection Agency. burning of coal and oil react with water and oxygen to form compounds that fall to the earth as acid rain. Under this program, the EPA awards a limited number of permits to all utilities. If reducing or cleaning up one ton of emissions costs a utility $300, and if it can sell a permit for $350, the firm will decrease its own emissions and sell the unused permit to another utility whose cleanup or reduction costs are higher. If removing a ton of pollutants would cost the second utility $400, then that company would be better off to buy the permit for $350 from the first SECTION 2 Review Vocabulary 1. Explain the significance of scarcity, subsistence, Critical Thinking 5. The BIG Idea How does population growth affect renewable resource, hydropower, biomass, gasohol, nonrenewable resource, glut, pollution, acid rain, and pollution permit. Main Ideas 2. Describing How did Malthus believe population growth world resources? How does this relate to the fundamental economic problem of scarcity? 6. Drawing Conclusions Why does the United States continue to rely on oil as its primary energy source? Write a paragraph explaining your answer. would affect the future of the planet? 7. Contrasting How do legislated standards and economic 3. Identifying Use a graphic organizer like the one below to identify four renewable and four nonrenewable resources. Resources Resources Renewable Renewable Nonrenewable Nonrenewable 1. 2. 1. 2. 4. Describing What legislative attempts have been undertaken to control pollution? 518 UNIT 5 The Global Economy incentives differ in regard to pollution control? 8. Analyzing Visuals Look at Figure 18.3 on page 511. Compare the population growth rates in the United States, Germany, Mexico, India, the Democratic Republic of the Congo, and Afghanistan. What conclusions can you draw from this information? Applying Economics 9. Scarcity As the president’s chief expert on energy issues, what would you suggest we do to conserve our nonrenewable resources? Why? CASE STUDY Toyota Leads in Hybrids Ahead of the Competition When Toyota began developing
the Prius in 1995, gasoline averaged $1.24 a gallon. Skeptics stated that such low gas prices did not justify the expense of switching from an internal combustion engine (ICE) to a hybrid gasoline-and-batterypowered “greener” car. Toyota did not listen to the skeptics and instead invested heavily in hybrid technology. A decade later, gas prices had more than doubled, and sales of the Prius hit the half-million mark. Engineering Green The long road to the hybrid’s success was riddled with problems—from touchy batteries and an “un-American” design to a trunk so small that it could not hold even a stroller. Yet top managers at Toyota were determined to create an environmentally friendly car that got great gas mileage. Toyota pushed its engineers—more than 1,000 of them—to work out the kinks, delivering the hybrid to the U.S. auto market in July 2000—5 years and $1 billion after the car’s conception. Despite the COMPARING HYBRIDS 2006 Autos Combined Gas Mileage (MPG) Monthly Gas Savings Honda Insight Toyota Prius Honda Civic Hybrid Ford Escape 2WD Mazda Tribute Hybrid 4WD Mercury Mariner Hybrid 4WD Toyota Highlander Hybrid 2WD Lexus RX 400h 2WD Source: omninerd.com 63 55 50 33 31 31 30 30 $79.37 $70.71 $63.89 $25.25 $17.92 $17.92 $13.89 $13.89 Sticker Price $19,330 $21,275 $21,850 $27,515 $20,705 $29,840 $33,030 $49,060 Prius’s “jerky ride” and its high sticker price, Toyota’s new model was a success. Fans of the hybrid car overlook the less-than-smooth ride for the improved gas mileage they get and the money they save at the pump. They also like to do their part for a cleaner planet with the lower emissions produced by the Prius compared to ICE cars. Setting a Trend Since the Prius was introduced, many other automakers have jumped on the hybrid bandwagon. But Toyota keeps expanding its list of hybrid cars. Couple that with a strong demand for low-cost, fuel-efficient cars not just in the United States but in other parts of the world, especially Europe, and it’s easy to understand why Toyota has become the
market leader in the United States—and one of the world’s biggest automakers. Analyzing the Impact 1. Summarizing Why did Toyota build the Prius? 2. Drawing Conclusions What problems with the Prius did Toyota have to overcome in order to be successful in the U.S. auto market? JOHN HILLERY/Reuters/Corbis CHAPTER 18 Global Economic Challenges 519 SECTION 3 Applying the Economic Way of Thinking GUIDE TO READING Section Preview Reading Strategy Economics provides a foundation for analyzing choices and making decisions today and in the future. Describing As you read the section, complete a graphic organizer like the one below by describing how capitalism helps us with economic choices. Content Vocabulary • cost-benefit analysis (p. 522) • opportunity costs (p. 522) • modified free enterprise economy (p. 522) Academic Vocabulary • equipped (p. 521) • incapacitated (p. 523) ISSUES IN THE NEWS Can America Keep Up?... Over the past century, Americans have become accustomed to winning every global battle that mattered: two world wars, the space race, the Cold War, the Internet gold rush. Along the way, Americans have enjoyed unprecedented prosperity and lived lives that were the envy of the rest of the world. Capitalism —U.S. News & World Report Today, while unemployment remains low, home values continue to surge, and fearless American consumers keep spending beyond their means, the land of the free is slowly, but unmistakably, yielding advantages earned over decades to foreigners who work harder, expect less, and, often, are better educated. But business leaders, top academics, and other experts... increasingly see America as a nation that has pulled into the slow lane.... ■ The U.S. economy had a remarkable run in the last century, making it the world’s largest economy. However, where will we be by the end of this century—or in the next few decades, for that matter? Most economic measures put the U.S. economy on top, but there are no guarantees that it will always be that way. When teams compete in sports, staying on top is usually more difficult than getting to the top. The same holds true for our economy. How well we do, and how long we continue to do well, depends in large part on our understanding of how we got into this position—and what we need to do to stay there. As you read in
the news story, some people have their doubts about how well we will be able to accomplish this feat. 520 UNIT 5 The Global Economy Jack Kurtz/The Image Works A Framework for Decision Making MAIN Idea The study of economics and economic tools help us make the best economic choices. Economics & You What tools do you use when you make a decision? Read on to learn how the study of economics can help us make choices for the future. Through your study of economics, you have learned that scarcity requires us to make choices. This began when you discovered different ways to analyze a problem and evaluate alternative solutions for it. You also found out that the social science of economics has evolved to the point where it functions as a generalized theory of choice. Economics provides a framework for decision making that helps people to become better decision makers. The future will be different from the past, or even the present for that matter. Yet one thing in economics is likely to remain the same— the way we think about problems. A Reasoned Approach Economic decision making requires a careful, reasoned approach to problem solving. The National Council on Economic Education, an organization dedicated to the improvement of economic literacy in the United States, recommends the following five steps to useful decision making: 1. State the problem or issue. 2. Determine the personal or broad social goals to be attained. 3. Consider the principal alternative means of achieving the goals. 4. Select the economic concepts needed to understand the problem and use them to appraise the merits of each alternative. 5. Decide which alternative best leads to the attainment of the most goals or the most important goals. —A Framework for Teaching the Basic Concepts, 2005 Life is full of trade-offs, but you will be better equipped to deal with the future if you know how to analyze the problems you will encounter. Decision Making These high school students discuss different solutions to problems with their project. Why should you follow decision-making steps? 521 Jeff Greenberg/PhotoEdit Coping With the Future MAIN Idea The ability of capitalism to adapt to changes in the market helps economies address economic issues of the future. Economics & You Do you remember learning how free market economies gradually adapt to change? Read on to find out how this adaptability will help in the future. Everyone wants to know what will happen to the economy in the future. How will it adjust, and what course will it take? We can find part of the answer by examining the way we make incremental decisions and part of the answer by understanding how markets work.
The success of capitalism, the economic system in which private citizens own the factors of production and use them to generate a profit, will play a role. Capitalism has demonstrated an ability to generate wealth., and it also has shown that it can adapt to the changing desires and needs of people. If it continues to show this adaptability in the future, capitalism will play a dominant role in our lives. The Success of Markets and Prices A modified free enterprise economy— a free enterprise economy with some government involvement—allows buyers and sellers to freely make all the decisions that satisfy their wants and needs. In such an economy, the forces of supply and demand are allowed to interact to establish prices in a market. Prices, in turn, act as signals for producers and consumers to make or change their production and spending decisions. A market economy has many advantages, including the ability to adjust to change gradually without the need for government intervention. As long as the forces of supply and demand are allowed to function, they will send producers and consumers the signals needed to reallocate resources. Adaptability Capitalism adapts to the changing wants and needs of people. Why is adaptability important for an economic system? cost-benefit analysis way of thinking that compares the cost of an action to its benefits (also see page 24) opportunity cost cost of the next best alternative use of money, time, or resources when one choice is made rather than another (also see page 20) modified free enterprise economy free enterprise system with some government involvement (also see page 53) Decision Making at the Margin Economists use a number of tools to help them analyze problems and make decisions. Some of these tools include production possibilities curves, supply and demand curves, and production functions. One of the most important decisionmaking tools is marginal analysis. For example, when a firm makes a decision to produce more output, it compares the extra cost of production with the extra benefits to be gained. If the benefits outweigh the costs, the firm decides to produce more. If the costs outweigh the benefits, the firm decides otherwise. This process of cost-benefit analysis involves comparing the costs of an action to its benefits. Firms use such cost-benefit analyses for most of their production or purchase decisions. Government agencies apply it when they evaluate programs. Individuals use it when they have to make decisions about specific actions they need to take. Cost-benefit analysis is used in a similar way to make choices among economic goals because even if goals conflict, it helps to evaluate the costs and benefits of each choice. Finally, we
must remember that economists use a very broad definition of costs— that of opportunity costs. This ensures that we account for all of the costs of a decision, not just the monetary ones. Reading Check Analyzing How do the five steps to resolving problems relate to economic decision making? 522 UNIT 5 The Global Economy Corbis The Triumph of Capitalism During the 1930s, the forces of socialism and communism were sweeping the world, while capitalist countries were in economic depression. Communism in the Soviet Union had considerable impact upon the world, and socialist parties were on the rise in Europe and the European colonies in Africa and Asia. Since then, communism in the former Soviet Union has collapsed under the weight of its own inefficiencies. Many socialist countries have embraced capitalism and the discipline of the market system. Capitalism is now the dominant economic force in the world, but it is not the laissez-faire capitalism of the past. Capitalism has changed because people have addressed some of the weaknesses that Karl Marx and others identified many years ago. The capitalism of the 1930s was ruthlessly efficient in providing only for those who produced or earned enough to buy the necessities of life. Early capitalism had little room or consideration for the elderly, the ill, or the incapacitated. Most capitalistic economies today, including the United States, have modified their systems to make them more compatible with prevailing norms of what is right and wrong. The result is a free market economy based on capitalism, yet modified to satisfy the economic goals of freedom, efficiency, equity, security, full employment, price stability, and economic growth. Capitalism has evolved over the years, and it shows every sign of continuing to do so in the future. In this respect, capitalism adjusts to changes the same way a market adjusts to small changes in supply and demand—incrementally, with adjustments so small that they are hardly noticed in the short run. This ability to evolve, and to adjust to the demands placed on it, are strengths of capitalism that will continue to ensure its success in the future. Reading Check Summarizing Why has capitalism been able to become the dominant economic system in the world? SECTION 3 Review Vocabulary 1. Explain the significance of cost-benefit analysis, opportunity costs, and modified free enterprise economy. Main Ideas 2. Identifying Use a graphic organizer like the one below to identify the steps in the decision-making process. Decision Making 3. Describing How does today’s capitalism in the United States differs from that of the 1930s? Critical Thinking 4
. The BIG Idea How is cost-benefit analysis useful in the decision-making process? 5. Synthesizing Why has capitalism developed into the most successful economic system? What might this imply about the future? 6. Inferring How does marginal analysis assist in decision making? 7. Analyzing Visuals Look at the photo on page 521. Are the students making their decisions as a group, or do they have a leader? Which approach is better, and why? Applying Economics 8. Cost-Benefit Analysis Think of a decision you must make in the next few days. Write a paragraph about how you will use your estimates of the costs and benefits to make your decision. CHAPTER 18 Global Economic Challenges 523 ENTREPRENEUR Profiles in Economics Nancy Barry has shown many people in the banking industry that it pays to provide money to the poor. In particular, she wants to “bring the poor woman into the center of our focus.” Nancy Barry (1950– ) • president of Women’s World Banking since 1990 • recipient of the Forbes Trailblazer Award for her efforts in opening doors for women in business Banking on Women Unlike her classmates at the Harvard Business School, Nancy Barry did not want to be an investment banker. She wanted to change the world. For 25 years, Barry has fulfilled that dream in her role as a member and president of Women’s World Banking (WWB), a “global not-for-profit financial institution devoted to increasing poor women’s economic access, participation and power.” Her early experience in the less developed countries of Peru and Tanzania convinced her that systematic change was necessary to encourage development. According to Barry, women need “access, not subsidies. They need opportunities, not paternalism.” As a member of the UN Expert Group on Women and Finance, she has worked with governments in developing countries to ensure that their policies hinder neither business growth nor women’s access to it. Microfinance Provides the Push Barry passionately believes that microfinance—the practice of lending very small amounts of capital to business upstarts—has the potential to revolutionize women’s lives. For example, a micro loan might help a woman in Bangladesh to operate a fruit stand, which would allow her daughters to go to school and her family to have health insurance. The average micro loan from WWB is only $532— not much by American standards but a huge amount for someone used to surviving on less than $
below. Regional Economic Cooperation 17. Explain the meaning of global interdependence. 4. _____ is the movement toward a more integrated and interdependent world economy. Section 2 (pages 509–518) 5. Many U.S. companies use _____ to lower operating costs by shifting some operations to countries with lower wage rates. 18. Describe why, despite Malthus’s predictions, certain parts of the world have enjoyed steadily increasing standards of living. 6. ____ is a type of pollution in which rain mixes with sulfur dioxide emissions to create a form of sulfuric acid. 19. Describe how American consumers and the automobile industry reacted to the oil price increases of the 1970s. 7. Economists use the term _____ to ensure that all the costs of a decision, not just the monetary ones, are included. 20. Explain why incentives exist that cause pollution and how they work. 8. An example of ____ is the separate tasks performed by employees who work on an assembly line. Section 3 (pages 520–523) Review Academic Vocabulary Match each of the terms with its synonyms. a. compounded b. context c. equipped d. incapacitated e. strategy f. successive 9. following, subsequent 12. intensified, worsened 10. design, tactic 11. framework, situation 13. outfitted, prepared 14. injured, disabled 526 UNIT 5 The Global Economy 21. Identify the importance of cost-benefit analysis. 22. Describe why adapting to change is important for an economic system. Critical Thinking 23. The BIG Ideas As both an environmentalist and an economist, which of the incentives to preserve scarce resources would you advise using? Why? 24. Synthesizing Select one of the resources discussed in Section 2. How can the price system help ensure that this resource is used wisely? Economics: Principles and Practices Web site at glencoe.com and click on Chapter 18—Self-Check Quizzes to prepare for the chapter test. Self-Check Quiz Visit the Interpreting Cartoons 30. Examine the cartoon below. What issue is being addressed by this cartoon? Why is this a problem Applying Economic Concepts 31. Scarcity Scarce natural resources are an issue that concerns citizens throughout the world. What can you personally do to help conserve resources? 32. Modified Free Enterprise Economy The United States has a modified free enterprise economy in which the government provides some regulation. Based on what you have learned about globalization and global problems, do you think the
government should play a smaller or larger role in regulating the U.S. economy? Give reasons to support your answer. 25. Making Comparisons If you had to decide to use either legislated standards or a pollution tax to reduce pollution, which would you choose? In your reasoning, explain the pros and cons of each approach. 26. Predicting How might the world be different in 50 years if we do not use resources wisely today? 27. Analyzing Globalization has led to an increase in interdependence. In your opinion, is this a positive or negative trend? Explain your reasoning. Thinking Like an Economist 28. Critical Thinking Renewable energy resources account for only a small portion of our total energy production. Explain the changes that would have to take place in order for people to make greater use of renewable energy resources. Math Practice 29. The table below shows the average gross domestic product (GDP) for low-, middle-, and high-income countries for the years 1990 and 2004. Study the table, and then answer the following questions in short paragraphs. a. Determine the percentage change in GDP for low-, middle-, and high-income countries. How do these rates compare? b. What might explain the difference between the growth rates? c. How might growing globalization change the GDP for these countries? Writing About Economics GDP AND I NCOME Low income Middle income High income 1990 $609,821 $3,238,587 $17,887,372 2004 $1,239,169 $7,156,777 $32,900,093 Source: World Development Indicators, 2006, World Bank Copyright Jeff Parker and CagleCartoons.com 2006. All rights reserved. 33. Expository Writing Access to clean water and sanitation is important to maintaining health. Research the availability of clean water for a developing country. Determine what problems exist and how these problems affect economic development. Then identify steps the country is taking to deal with the problem. Also discuss aid the country might receive from outside sources to deal with the problem. CHAPTER 18 Global Economic Challenges 527 &The Global Economy YOU Recycling The average American generates about 4.5 pounds of waste each day. Thanks to the growing popularity of recycling, only about 3.1 pounds of that waste make it to the landfill. Americans concerned about the environment increasingly are willing to recycle. They have much to learn from their European counterparts. Waste Not, Want Not Many Europeans are avid recyclers. Much of this enthusiasm is due to widespread
of Solid Waste photo: landfill in the United States While U.S. recycling efforts have been largely voluntary, the European example has had an impact on this side of the Atlantic. Today you can find trash cans that divide waste into recyclables and regular wastein many public places. In 2006 Maine became the first state to require makers of televisions and computer monitors to pay for recycling and safely disposing of their old products. U.S. companies have learned that customers appreciate their recycling efforts. Many European recycling programs are now in effect in the United States, Canada, and elsewhere in the world. Analyzing the Issue 1. Identifying How do European countries make recycling easy for their citizens? 2. Analyzing Visuals Take a look at the graph titled “U.S. Sources of Waste.” What are the three largest sources of waste? How could individuals and corporations help lower this percentage? 3. Applying Research recycling efforts in your community. Then use the examples from these pages to outline improvements to these efforts. Louie Psihoyos/Corbis Reference Section Personal Finance Handbook................. R1 Skills Handbook.......................... R34 Databank.......................... R60 Reference Atlas................ R76 English/Spanish Glossary................... R90 Index....................................R128 Acknowledgments........................R152 F64/Getty Images Personal Finance Handbook Financial Fitness: Money and Real Life • Can you afford a cool car? • How can you avoid the credit trap? • Is college for you? • Can you become a millionaire? Only you can answer those questions—and thousands of others. Your life is ahead of you; it’s up to you to decide how you’ll live it. Whatever goals or dreams you may have, the way you live your life
will be determined, at least in part, by your relationship to money: how you get it and how you use it. The opportunities you create for yourself are greatly affected by the money habits you form when you’re young. This handbook is designed to help you learn how to use money to meet your goals and to live the way you want to live. It can help you make intelligent decisions about money so you can get what you want and need— today and throughout your life. 1. Your Checking Account.............R2 2. Budgeting.........................R4 3. Saving and Investing................R6 4. Credit and You....................R10 5. Your Education....................R16 6. Getting a Job......................R20 7. Paying Taxes......................R24 8. Renting an Apartment..............R28 9. Buying a Car......................R30 10. Insurance Matters.................R32 (t) Ryan McVay/Getty Images, (c) Martyn Goddard/Corbis, (b) Getty Images R1 Your Checking Account: Check into independence Are all banks alike? What if you bounce a check? Where do checks go? Knowing the smart way to open and manage a checking account can help you avoid hassles—and save money. Help! If your debit card is lost or stolen, your liability for an unauthorized withdrawal can vary. If you notify the financial institution within two business days after learning of the loss or theft, you’re liable for only $50. If you don’t report unauthorized use that appears on your statement within 60 days after its mailing date, you could lose all the
money in your account. How It Works A checking account gives you a safer place to keep cash than a cookie jar while making it easy to pay bills and buy things. Opening an Account To open an account, you need identification and usually a deposit (money you put into the account). Some banks offer student accounts requiring no initial deposit. The amount in your account at any given time is the balance. Putting money in or taking it out is a transaction. To deposit a check, endorse (sign) it on the back. If you’re depositing the entire check rather than keeping some cash, write “for deposit only” and your account number below your signature. When you open an account, you’ll get a receipt for your deposit and, soon, numbered checks printed with your name, address, and account number; a check register; and a debit card. A debit card acts like an electronic check: money is taken out of your account immediately (a withdrawal or debit). Making Withdrawals There are five ways to make withdrawals: 1. Write a paper check, or pay by check over the phone. 2. Get cash from a teller at a bank branch. 3. Use a debit card at a store or automated teller machine (ATM). 4. Use your bank’s Web site to pay a bill. 5. Authorize the bank to automatically pay recurring bills. Keeping Good Records Record all transactions in your check register. You’ll get a monthly statement showing activity for the previous month. Compare it with your check register for errors and keep both in a file. R2 PERSONAL FINANCE HANDBOOK Getty Images Which Bank, What Account? Some banks offer better service or lower fees, or are conveniently located. Banks offer different types of accounts, some of which pay interest in exchange for having the use of your money. Before opening an account, savvy consumers ask if there’s a minimum balance requirement, how many checks can be written per month, if there are fees for writing checks, and if the account will earn interest. Choose a traditional bank that offers some services online or a bank that exists only on the Net. If you bank online, don’t rely on the bank’s system to protect you. Install a firewall and don’t open suspicious e-mails or provide personal information to anyone who contacts you. Check your balance often to see if a thief has taken money from your account. You’re liable for only the
first $50 if you report it to the bank within two days. Find more tips at www.idtheftcenter.org. Balancing Act Be TipTip sure your balance is greater than the amount you withdraw. Otherwise, your check will bounce; that is, the recipient’s bank will return it and you’ll be charged a hefty fee by your bank—and usually theirs, too— for having an overdrawn account How To Write A Check In this example, if you spelled out “Eleven fifty” instead of “Eleven hundred fifty,” the bank would pay only $11.50—not $1,150.00. Be sure the numerals and longhand version are the same amount. Spell out the amount of the check, including cents (expressed as a fraction) beside “Dollars.” Enter the payee’s name. Enter the date you write the check. Bernadette C. Dabney 12 Vico Lane Haddonfield, NJ 08033 Date Today’s date 20 137 Enter the amount of the check in numerals. Pay to the order of ABC Rental Company Eleven hundred ﬁfty and no /100 FIRST NATIONAL BANK OF CHICAGO $ 1150.00 Dollars Memo April Rent Bernadette C. Dabney Sign the check. Note the purpose of the check as a handy reference. Fill in the blank with a line so no one can change the amount. Test Your Financial Fitness 1. Explaining Why is it important to balance your checkbook? 2. Determining Cause and Effect List two reasons to avoid bouncing a check. 3. Paraphrasing Describe three ways to protect yourself from online theft. PERSONAL FINANCE HANDBOOK R3 Budgeting: Take control of your cash Did you really need that cashmere sweater or those $200 sneakers? How did you get $5,000 in debt? Getting control of what you spend—budgeting—is a skill you’ll need throughout your life. Where Does Your Money Go? Many people have no idea what happens to their money. It just seems to “disappear.” Here’s how to find out how where yours goes: 1. List the bills you pay every month. 2. For one month, jot down everything you buy and the price— no matter how little it costs. At the end of the month, categorize
the items you’ve listed: “Food,” “Transportation,” etc. Then break down each category; for example, “Food: School Lunches, Snacks, Restaurants.” Now you know where your money goes. The Urge to Splurge Advertising and peer pressure tempt us to buy things we don’t need. Which of the items you categorized above were things you needed, like gym shoes or an ink cartridge? Which ones were things you just wanted: take-out pizza or that CD you played only once? Those are impulse purchases. They don’t seem expensive when you buy them, but they can keep you from reaching larger goals like a vacation, a cool car, or college. Think Before You Buy Before you buy an item, ask yourself whether the item is worth the time you’ll have to work to pay for it. The better you get at saying “no” to unnecessary spending, the more money you’ll have for what’s important to you. Creative Budgeting Using the expenses you listed before, complete a chart like the one on the next page. Look at each expense in column 2 and think of ways to reduce it. Enter the lesser amount in column 3, your New Budget. Be sure to budget 10 to 30 percent of your income for “Savings.” (To see why, go to Saving and Investing on page R6.) Total column 3 to see if your budget matches your income. If not, you’ll need to keep trimming expenses until it does or find another source of income. R4 PERSONAL FINANCE HANDBOOK (t) Bumann - StockFood Munich/Stockfood, (b) Photodisc/Getty Images Part-time Job: Building Your Budget $______ Monthly allowance: $______ Total income: $______ Spending Category Current Expenses New Budget Food: School lunches Restaurants & take-out Snacks Transportation: Car payment Insurance Gasoline Maintenance (estimate) Entertainment: Movies Music Games Sports and hobbies Personal care: Clothes Shoes Haircuts Accessories Cosmetics Savings (10–30% of income) Utilities: Phone Internet access Medical/dental Donations to charity Miscellaneous TOTAL Autonomy According to the American Psychological Association, neither popularity, influence, money, nor luxury contributes the most to happiness. What does? Autonomy (feeling that your activities are selfchosen), feeling that you’re effective in
your activities, a sense of closeness with others, and self-esteem Advertising executive Gary Dahl became a millionaire by convincing people to pay $3.95 each for “Pet Rocks” in 1975. The product was simply a beach stone that cost him a penny, packaged in a box with a “Care and Training of a Pet Rock” manual. Test Your Financial Fitness 1. Listing List five ways you can start saving money. How much could you save in a year by cutting these costs? 2. Defining What is an impulse purchase? What was the last one you made? 3. Explaining Why is it important to live on a budget? 4. Applying Make a list of three ways you can re-use things you usually throw away. (t) Corbis, (b) Time Life Pictures/Getty Images PERSONAL FINANCE HANDBOOK R5 Saving and Investing: Make your money grow Want a faster computer or a great car? How about retiring at 40? You don’t have to be old or rich to save and invest. People with ordinary jobs and moderate incomes can build wealth—and financial freedom—just by starting young. Saving: The Frugal Habit Frugality is the attempt to save money instead of spending it. Why save? Because saved money grows. Here’s why it’s worth it: 1. Savings are your only safety net in financial emergencies. 2. With an early start, you can amass huge amounts of money over time. 3. Having a savings account improves your credit rating (see Credit and You on page R10). The Secret of Compounding Why save now? Because of a simple but very important concept: compounding. It’s the process of interest earning interest. And it takes time to kick in. If a family saves $75 a month at 5 percent interest from the day a child is born, they’ll have more than $24,000 by the time she’s ready for college. More than $9,000 of it is interest—money their money earned. If they wait until the child is seven to start, they’ll have to save almost $137 a month to get the same result. Two key concepts make compounding work: yield and time. Yield: Different types of accounts offer different annual percentage rates (APR). That’s the rate you’ll get if the interest is compounded only once a year. Example: You
deposit $10,000 in an account with an APR of 5 percent. At the end of the year, your money has earned $500 ($10,000 × 5% × one year = $500). So you have $10,500. Interest for some accounts is compounded more often: semi- annually, quarterly, monthly, daily, or even continuously. The more frequently it’s compounded, the more interest you get. That’s because interest is added to your deposit periodically and the entire amount earns, or yields, interest—the annual percentage yield (or APY). In recent years, the average American family has earned about $40,000 per year but saved 0 percent of its income. The Chinese earn on average $1,500 per year—but save 23 percent of their incomes. The worldwide average is about 20 percent. R6 PERSONAL FINANCE HANDBOOK Who Is Rich? Looking rich and being rich are not the same. Most millionaires drive used cars, live in modest houses, and don’t wear expensive clothes. They save at least 15% of their earned income, and four out of five of them did not inherit their money. Example: You deposit the same $10,000 at 5% APR, but interest is compounded twice a year. After six months, your money has earned half the annual interest ($10,000 × 5% × ½ year = $250). The bank adds that interest to your original deposit. Now the $250 also earns interest for six months. The APY is 5.0625%. So at the end of the year, you have $10,506.25 instead of $10,500. That may seem like a small change, but it can make a big difference as your balance grows over the years. Time: The longer you leave your money in an account, the better compounding works—especially in an account with frequent compounding. If you left $10,000 in an account for 10 years, with interest compounded quarterly, you’d have almost $16,500— without ever adding another cent! Ways to Save Your goals should determine which savings methods you choose. A savings account is ideal for “emergency funds,” since you have fast access to cash. But it also pays low interest, so you’ll want to find other ways—including investments—to get enough interest to offset the taxes you’ll pay on the interest, plus inflation. SAVINGS VEHICLES
AND RISKS Savings account: Safe (FDIC-insured). Some student accounts offer no deposit requirement. Easy access to funds makes them good for emergencies, but interest is low. Money market deposit account: Safe (FDIC-insured), with easy but infrequent withdrawals. These accounts pay slightly higher interest than savings accounts, with various deposit requirements. Money market mutual fund: Relatively low risk because invested in a pool in short-term vehicles such as certificates of deposit and commercial paper. Terms are from 90 days to 13 months. Interest is comparable to money market deposit accounts. Certificate of deposit (CD): FDIC-insured time deposit with slightly higher interest than savings accounts and opening requirements as low as $250. Terms are from 3 months to 5 years with varying interest and low penalties for early withdrawal. U.S. savings bond: Safe (government-backed) and available for as little as $25. Terms vary, but after a waiting period bonds can be redeemed before maturity. Not taxed until redeemed. Most types offer interest higher than savings accounts. PERSONAL FINANCE HANDBOOK R7 Common Investments Type of investment Advantages Disadvantages Stocks High earnings potential High risk Need broker to buy and sell Stock mutual funds Some risk, but less than buying stocks individually Professional investment manager Need fund company or broker to buy and sell Minimum investment usually $1,000 or more Bonds Good earnings potential Federal: no default risk (see Ways to Save on Federal tax on federal and corporate bond interest Bond mutual funds page R7) Municipal: low risk, no federal tax Corporate: moderate risk Professional investment manager Less risk than individual bonds Need broker to buy and sell Investing: Not Just for the Rich About 19 percent of students in grades 8–12 own stocks or bonds. If you think you don’t have enough money to invest now, remember the compounding principle: time is on your side. Even the spare change you keep in a jar every week, invested consistently and well, can reap big rewards in time. Investment advice can be confusing and, let’s face it, boring. A good way to learn is to join—or start—an investment club. Get information at www.better-investing.org/youth/youth.html. All investments involve two unknowns: the possibility of making money (the return), and the risk of losing it. In choosing investments, you’re always balancing those two realities. Common investments include the following: Stocks A stock is a
share of a company’s assets. Say you want to start a company that sells jewelry but can’t afford to buy the beads. So you ask three friends for money. Now each of you owns one fourth of the company—one share. When you sell the jewelry, you each get a fourth of the profits. If it doesn’t sell, you all lose money. That’s the stock market, simplified. Most investment professionals consider stocks the best way to get a fairly dependable, high return—but only if you keep them for more than ten years. Individual stocks and the stock market itself shoot up and down like a roller coaster. But over the last 50 years, the average return for stocks has been 10 percent—higher than savings vehicles and most other types of investments. Patience is the key to success. You can buy stocks online, through a stockbroker or mutual fund company, or directly from companies that offer “Drip” The stock market crash of 1929 ushered in the Great Depression, which plunged one-third of Americans into poverty. By 1933, the market had lost 80% of its precrash value, and the unemployment rate had reached about 25%. R8 PERSONAL FINANCE HANDBOOK Bettmann/Corbis Early Investing A 16-year-old who invests $2,000 a year at 10 percent APR will have more than $2 million at age 65. By waiting until you’re 26 to begin, you’d have less than $803,000direct reinvestment) funds in which earnings are automatically reinvested in more of their stock. To reduce your risk, you can buy stocks through a mutual fund, a pool of money from many people invested in a variety of stocks or bonds by an investment manager. There are two ways to make money with stocks. You can sell them when their value is high; the profit is called a capital gain and is taxed as income. Or you can keep them and receive regular payments (dividends), if the company pays dividends. Bonds Governments (federal, state, and local) and corporations sell bonds to raise funds for projects like schools, bridges, or business expansion. They’re borrowing your money. In return, you generally get periodic interest and a fixed amount of money at a specified time in the future (maturity date). Some types of federal bonds offer different payment plans. Maturity dates vary. Most bonds are considered less risky than stocks, and government bonds are
less risky than corporate bonds, since companies sometimes lose money. U.S. Treasury Instruments Treasury instruments are loans you make to the government. They include T-bills, T-notes, T-bonds, Treasury Inflation-Protected Securities (TIPS), and several series of savings bonds. (See the Savings Vehicles table on page R8). They offer various interest rates and maturity dates. Because they’re issued by the government, treasury instruments offer low risk. They can be bought directly from the government online, or through banks or brokers. Minimum investments for most are $1,000–$10,000; some savings bond minimums are much lower. Other Investments A home may be the largest investment you’ll make. Real estate is considered a good investment because most properties increase in value—but not all. Other types of investments include precious metals (like gold and silver) and retirement plans. Test Your Financial Fitness 1. Explaining Look at the budget you prepared on page R5, and see if you can increase the amount you’re saving. If so, what type of savings vehicle or investment will you use, and why? 2. Defining What is the difference between APR and APY? 3. Summarizing How can you make buying stocks less risky? 4. Applying In the library or on the Internet, research an investment you think you’d like to make. Write down your reasons. Royalty-Free/Corbis PERSONAL FINANCE HANDBOOK R9 Credit and You: Use it, don’t abuse it How can you buy a hot new car if you don’t have $25,000? Can you avoid the credit card trap? Whenever you buy something but don’t have the cash, you’re using credit. Mastering the wise use of credit gives you a head start on financial fitness. Are You Creditworthy? “Credit” means borrowing someone else’s money. In exchange for the loan, you’ll have to pay back more than you borrow. That’s called interest. It’s a percentage of the borrowed amount. Who Decides? Lenders decide whether to lend you money and how much interest to charge by looking at three things: 1. Can you pay them back? Add your monthly income to your bank account balances to find your total assets. Then total your monthly expenses, including debts (obligations). Compare the two to see if
you’re able to take on more debt. YOUR CAPACITY TO REPAY DEBT Monthly income + Checking account + Savings account = Your assets Compared to Monthly expenses + Total debt = Your obligations 2. Do you have a good credit rating? Lenders want to know if you’ve repaid previous debts on time. 3. Do you have collateral? Collateral is used mostly to buy homes or cars. If you don’t make the payments, the lender takes the property. Your Credit Score Like your shadow, your credit score, or credit rating, follows you throughout your life. It’s a number from 300 to 900 that shows how responsible you’ve been with your finances—recently and in the past. The higher your score is, the more likely you are to get credit and a low interest rate. Credit scores are assigned by three credit bureaus—Equifax, Experion, and TransUnion—that track each person’s financial history and create credit reports. Check yours at least once a year to be sure it contains no incorrect information. Check Your Credit TipTip You can get one free report per year from each credit bureau. Call 877-322-8228; write to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281; or go to www.annualcreditreport.com. R10 PERSONAL FINANCE HANDBOOK Noel Hendrickson/Masterfile Corporation Endless Payments It will take you almost 22 years to pay off a $1,000 charge on an average credit card if you pay only a 2 percent minimum payment. The $1,000 purchase will wind up costing you $3,000— $2,000 of it in interest! How Do You Score? Paying on time raises your credit score; paying late lowers it. Here’s how: Credit Cards When you use a credit card, you’re borrowing money that must be paid back—plus interest. Card issuers set a limit on the total amount you can spend. Smart borrowers avoid reaching that limit because it lowers their credit score. Once you’ve established credit, you’ll get offers for many cards. To avoid the temptation to rack up debt, keep no more than two or three. Choose those with the lowest annual percentage rates (APR)—not just low introductory rates that bounce up later. Be sure to read the fine print on the contracts—all of it. The
Price vs. the Real Cost The longer it takes you to pay off your credit card balance (the total amount you owe), the more the items you bought with the card actually cost. That’s because card issuers make their profits by charging interest—from 1 to 25 percent or more—on the amount still owed. Example: If you pay cash for a pair of $100 sneakers, they cost $100. If you use a credit card at an interest rate of 18.9% and take a year to pay it off, they cost $118.90 or more, depending on how the interest is calculated. The Credit Card Trap Every month, you’ll get a statement listing everything you bought in the previous month, payments you made, and the balance. You are usually allowed to pay less than the total balance as long as you make at least the “minimum payment due” listed on the statement. This is how many people fall into the credit trap: they make only the minimum payment, racking up more debt month after month. PERSONAL FINANCE HANDBOOK R11 Sample Credit Card Statement Company where sneakers were bought with card CreditCo National Bank 6-2 InJump Athletic Gear Date of recent sneakers purchase Balance Minimum payment due Payment due date Period of time statement covers Amount of recent sneakers purchase Balance The least amount you can pay without damaging your credit 5–15 to 6–14 100.00 1,650.00 33.00 7–15 Date card issuer must receive payment Other Sources of Credit There are a number of ways to borrow money besides credit cards. These include relatives and friends, as well as retail stores and financial institutions, such as banks, credit unions, and savings and loan associations. Retail Stores Most department stores and other retailers let customers with good credit buy merchandise from their stores with one of three types of credit: • Installment sales credit: Major items like refrigerators are often bought by making equal payments, which include interest and service charges, over a set period of time. • Regular charge accounts: You can buy goods or services within a set dollar limit by agreeing to pay off the balance in the future. Interest is charged only if the balance is not paid in 30 days. • Revolving credit: You usually make no deposit but can buy items on credit on an ongoing basis, up to a certain dollar limit. If you repay the balance by a certain date, some stores charge no interest; most charge interest on each month’s unpaid balance. Credit cards are also
a type of revolving, or open-ended, credit. Service providers Your agreements with providers of services (electricity, cell phone, Internet, etc.) are credit arrangements. The history of your payments to them often appears on credit reports—especially if you pay late. Revolving Debt By 2005, Americans owed $750 billion in revolving debt—six times more than they did 20 years before. R12 PERSONAL FINANCE HANDBOOK Financial Institutions Commercial banks, savings banks, credit unions, finance companies, and some insurance companies lend money, with varying interest rates and fees. Shop and compare costs before borrowing. Some loans require a single, lump-sum payment on a specific date; others accept monthly payments for either a set or indefinite period of time. Comparing Costs As with credit cards, the length of time it takes you to repay the balance of a loan from other creditors affects the total amount you pay. You can see in the table below that when you take longer to pay off a loan, you pay less each month, but your total cost is higher. That is because interest gets compounded over a longer period of time. COSTS OF 3- AND 5-YEAR INSTALLMENT LOANS $10,000 loan at 12% interest compounded annnually 3-year loan 5-year loan Number of monthly payments Amount of each payment 36 $347 60 $231 Total interest paid $2,492 $3,770 The annual percentage rate (APR) of the loan also affects the total amount you pay. Be sure to check it before signing any loan agreement. APR COMPARISON 5-year Loan of $8,000 Lender A Lender B APR Monthly payment 11% $174 Total interest to be paid $2,436 Total cost $10,436 13% $180 $2,921 $10,921 HOW TO ESTABLISH CREDIT Paying cash for everything does not make you a good credit risk. To prove you’re responsible enough to get credit, you have to establish a credit history. About 15% of a credit score is based on how long you’ve had credit. So it’s important to establish credit as soon as possible. 1. Apply for a “secured credit card” at a bank. You’ll have to make a deposit—usually about $300—and you’ll get a credit card you can use to make purchases up to the amount you deposited. Buy something each month with
the card and be sure to make monthly payments on time. After about a year, if you’ve paid off the balance, you can get your deposit back and switch your secured credit card to an unsecured one. 2. Open an account at a major retail store. (They will probably ask for your current bank credit card number and expiration date.) Buy something on credit and make the payments on time. 3. Have someone with good credit co-sign a credit application. A cosigner agrees to pay your debt if you don’t. PERSONAL FINANCE HANDBOOK R13 Shredding old financial documents helps guard against identity theft. Identity Theft Criminals could steal your name, social security number, date of birth, and other private information—and use it to run up debts in your name: credit cards, wireless phone accounts, or loans. Here are some tips to help protect your identity; find more at www.idtheftcenter.org. • Be careful who sees your personal information. Never provide it on the Internet or by phone to anyone who contacts you. Banks don’t request private information by e-mail. • Thieves sort through people’s trash and mailboxes. Shred statements that include account numbers and any unused offers of credit cards you receive in the mail. • Always know where your cards are. When you buy something with a card, watch to see that it’s not copied and get it back as quickly as possible. • Check your credit report periodically for accuracy. • Report lost or stolen credit cards immediately to the fraud department of a credit bureau. You’re liable for only the first $50 after your report. • Do business only with companies that will provide their name, street address, and phone number. • Don’t use the links in an e-mail to get to any Web page. Type the Web address in your browser window. A secure site begins with “https://” rather than “http://”. R14 PERSONAL FINANCE HANDBOOK Simon Potter/Imagesource.com CREDIT BASICS Annual percentage rate (APR): The percentage of interest you are charged for every year you owe money. A ﬁ xed APR will stay the same; a variable APR will rise and fall with changes in national economic indicators. Compounding: The process of charging interest on the amount of interest still owed. This interest is added to the stated interest rate because it’s
money you owe but have not yet paid. EXAMPLE: If the stated APR on a $10,000 loan is 10%, you’d expect to pay $1,000 in interest per year (10% of $10,000). But since lenders compound interest, you may pay an extra $47 on the same $10,000 loan—for a total interest of $1,047. Some lenders compound interest more often—even daily. The more often interest is compounded, the more you will owe. Delinquent payment: A payment that is 30 days or more past due. This is not the same as a late payment, which is one received after the due date but before it’s 30 days past due. If a car payment due on the ﬁ rst of the month is received on the 20th, for example, it’s late and you’ll pay a late charge. But it’s not delinquent and won’t appear on your credit report. Grace period: A period of time after you buy something on credit during which some creditors charge no interest if you pay the balance before the due date. Finance charge: The total cost of credit. In addition to interest, some companies charge fees for annual membership, cash advances, services, transactions, and exceeding the credit limit. Introductory rate: A lower rate of interest offered by some credit card companies to persuade consumers to apply for their card. After an initial period, the APR you’re charged increases. It’s important to read the ﬁ ne print on the offer to ﬁ nd out when the APR increases and whether the low rate applies only to balances you transfer from another credit card, to new purchases, or to both. You also need to know how long you have to transfer balances; some cards feature a ﬁ xed APR on balance transfers for the life of the card; others for only 45 days to six months Big Difference Your credit score makes a big difference in the interest rates lenders charge. For example, a person with a credit score of 720 or above applying for a 3-year loan to buy an $18,000 car may pay 7.258% interest. The same dealer might charge a person with a credit score between 500 and 559 a rate of 15.294% for the same loan. At the end of the 3 years, the first applicant would have paid $2,085 in interest; the applicant with the low
credit score would have paid $4,557. Test Your Financial Fitness 1. Summarizing Why is a good credit score important? 2. Identifying What are two ways to establish good credit? 3. Listing List two ways to avoid paying interest when you buy something. 4. Applying Analyze three credit card offers your family has received in the mail or that you have seen advertised. Which one offers the best deal? Why? PERSONAL FINANCE HANDBOOK R15 Your Education: Jump-start your future Is college for you? Which one? How can you pay for it? Whether you plan to attend college or enroll in vocational training after high school, don’t let rising costs keep you from realizing your dreams. Why Go to College? A college education enriches a life in ways that can’t be measured in dollars. But there’s a practical reason to continue your education beyond high school, too: what you learn usually determines what you earn. Compared to workers with only highschool educations, those with bachelor’s degrees have greater lifelong earning power and are less likely to be unemployed. Unemployment and Earnings Full-Time Workers Age 25 and Over by Educational Level Education Level Unemployment Rate College-degreed workers earn an average of 62 percent more than those with highschool educations—roughly $2 million more overall during their working years. No high school diploma High school diploma/GED Bachelor’s degree (4 years) 8.8% 5.5% 3.3% Source: Statistical Abstract of the United States, 2006. Median Annual Earnings Males Females $19,802 $10,613 $27,526 $15,972 $55,188 $34,292 How Much Is It? A bachelor’s degree can cost between $48,000 and $116,000, depending on the school. That’s for tuition, fees, room, and board—but not transportation or living expenses. Choosing the Right School Some schools are better at certain fields of study than others. Costs, too, vary widely from school to school. Consider these factors when choosing a college or vocational school: • Your goals: Can you get the educational experience you want at a public school? If not, don’t rule out a private school because of cost; some are generous with financial aid. Another option is to start out at an inexpensive community college and transfer to a four-year school. Income potential: If you choose
a career with high income potential—like medicine or computer engineering—you can afford to take on a higher debt at an expensive school. • Location: Out-of-state students pay a surcharge—usually • thousands of dollars a year—to attend public universities. Costs also vary in different parts of the country. R16 PERSONAL FINANCE HANDBOOK Comstock Images/JupiterImages Comparative Costs and Financial Aid 4-Year Public and Private Colleges, Academic Year 2005–2006 Type of Institution Cost and tuition and fees Total cost Percentage of students qualifying for financial aid Average aid amount (loans and grants) Four-year private Four-year public $21,235 $5,491 $29,026 $12,127* 76% 62% $11,600 $6,200 *Average annual costs at two-year public community colleges are about half those of four-year public colleges Advanced Credit TipTip You can lower college costs by taking advanced placement courses in high school and by scoring high on the College-Level Examination Program (CLEP) test. You’ll get college credits for what you already know. Financial Aid Basics Tuition is the amount a school charges for instruction. This does not include room, food, books, or other fees. In recent years, the cost of college tuition has risen faster than incomes or inflation. Few parents can afford the full cost of educating their children, and so most students need financial aid. The good news is that most students qualify for some type of financial aid. It takes research to find it, so the sooner you start looking, the better. How much aid you receive depends on these criteria: • income—yours and your parents’ or guardians’ • family assets and expenses • number of college students in your family • amount of aid available at the school • number of students applying for aid and their financial need compared with yours THE COST OF EDUCATION Total Cost (tuition, board, books, fees, living expenses) – Total Aid (loans, scholarships, grants, work-study) = What you owe Types of Aid Available Apply for all types of financial aid for which you may be qualified, including: Scholarships and grants: Both are outright gifts you don’t have to pay back. Most scholarships are based on academic, athletic, or artistic ability. Many companies offer them to employees’ children, and some states provide them to residents; for example, Georgia guarantees free tuition to drug-free students with
at least a B average. PERSONAL FINANCE HANDBOOK R17 Maximizing Aid TipTip You’ll be expected to contribute about one-third of your savings toward tuition, so if you have credit card debt, use your savings to pay down as much of it as possible before applying for financial aid. Some grants, such as federal Pell grants and Supplemental Educational Opportunity grants, are awarded for “exceptional financial need.” Others are given to students belonging to a certain ethnic group, club, or civic organization. The armed forces offer aid in return for military service after graduation. Work-study programs: Many colleges offer federally funded, oncampus jobs to students receiving financial aid. Loans: More than half of all financial aid is in the form of loans—which must be repaid. Regardless of your income, you probably qualify for one of these loans: • Government loans: The U.S. Department of Education (DOE) offers low-interest loans to students and parents. Some are subsidized (the government pays the interest until you’re out of school) and are based on need; others are unsubsidized (interest accrues while you’re in school) and are not need based. In order of desirability, they are a. subsidized Perkins Loan b. subsidized Stafford or Direct Loan c. unsubsidized Stafford or Direct Loan d. unsubsidized Parent Loans for Undergraduate Students (PLUS) • Private and college-sponsored loans: Private loans are available from banks and other financial institutions. Interest rates are generally higher than those of federal loans. Aid Application 1-2-3 Once you’ve been accepted at several schools, follow this loan application process: 1. Gather up documents. You’ll need proof of income, such as tax returns, W-2 forms, pay stubs; mortgage statements; and proof of any unusual financial hardships in the family, such as high medical expenses or unemployment. 2. Find aid sources. Use the Internet to find grants and scholarships, then loans. Be sure to check deadlines. 3. Fill out and send in applications. The first form to complete is the Free Application for Federal Student Aid (FAFSA), available from your high school, library, or DOE’s Web site. It’s needed for any type of government aid. DOE will send you a number called an Expected Family Contribution (EFC), which is an amount computed according to a formula established by
law. Colleges use it to determine the amounts of grants, loans, and work-study awards. R18 PERSONAL FINANCE HANDBOOK www.fafsa.ed.gov Payback The average student graduates from a 4-year college with a debt of almost $19,000. About 60 percent of all students receive grants— averaging $3,300 at public, four-year schools in 2004–2005. Payback You don’t begin repaying some government loans until after you’re out of school. Other loans, such as PLUS loans, require you to begin making payments within 60 days after you receive the funds. Since unsubsidized loans accrue (accumulate) interest while you’re still in school, you’ll want to pay those off first. For some loans, you can repay just the interest for a period of time or start with smaller payments that increase as your income presumably increases. Some lenders even tie payment amounts to rises and drops in your income level. Graduates who take teaching jobs in certain schools; who volunteer with the Peace Corps, Americorps, or VISTA; or who serve in the military may have their federal loans deferred, partially repaid, or even canceled. It’s important to repay your loan on schedule to avoid penalties and damage to your credit, as well as to reduce the amount of interest you pay. Some lenders lower the principal or the interest rate if you make on-time payments. Your lender or the school’s financial aid office can help you establish a workable repayment plan. Test Your Financial Fitness 1. Stating How much more money will the average college graduate earn per year than someone with only a high school diploma? 2. Listing List four things that are important to you in choosing a college or vocational school. Using the Internet or library resources, find three schools that meet your criteria. 3. Applying Choose one of the schools you identified above and calculate how much it would cost to attend that school for one year. Then find two types of financial aid for which you might qualify. PhotoDisc/Getty Images PERSONAL FINANCE HANDBOOK R19 Getting a Job: Make it work for you Where are the jobs? What are your skills? Do you need a resume? Whether you’re searching for a summer job or planning to enter the labor market right after high school, looking for work is hard work. Knowing where to look and how to present yourself can help you land a better
job. The Right Job Besides earning money and learning good work habits, use your first few jobs to find out what tasks you like to do—and what you don’t. Take the time to explore what interests you. One good method is the “informational interview.” Many businesspeople who may not have current job openings are willing to chat briefly with young job seekers. Call and ask if they have a few minutes to give you information about their field. Don’t ask about job openings. Ask how they got their start in the field or what a typical day is like. Leave a resume and ask for names of others who might be helpful. You’ll gain interviewing experience, contacts, and possibly a job lead. Always mail a handwritten thank-you note. Finding Openings The best way to find a job is to ask family, friends, and acquaintances for leads. It’s called networking. Everyone you meet is a potential source of information about a job—now or in the future. Other resources include: • “Help Wanted” Signs: Walk around town or the mall and apply in person. Dress appropriately and be ready for an on-the-spot interview and application. • Newspapers and the Internet: Your local newspaper carries help-wanted ads every day. On the Internet, you can find job postings and post your resume. • Placement Agencies: Free state-run employment services match qualifications with available jobs. Private placement companies charge applicants or employers; ask who pays before signing up. • Start Your Own Business: Teenagers start businesses every day. Not all teen businesses are financially successful, but they all provide invaluable experience that impresses college admissions officers and potential employers. Eighty percent of jobs are never advertised in newspapers or online. Threefourths of all employees find their jobs through networking. Be the Boss TipTip For ideas and advice for teen entrepreneurs (people who own their own businesses), check out the Web sites of the Small Business Administration (www.sba.org) and Junior Achievement (www.ja.org). R20 PERSONAL FINANCE HANDBOOK BananaStock/Alamy Getting in the Door For some jobs, like retail sales, you’ll see a sign in the window and can simply walk in and complete an application. But most employers expect you to send a resume and cover letter first. Your Resume: A resume is a document that summarizes your experience, skills, and education. Its purpose is to present you
list them in the “Experience” section of your resume (see the sample on the previous page for formatting). Be brief and use active verbs like organized, developed, or implemented. If you can truthfully claim results, do so: “raised $1,700” or “reduced filing errors by half.” 4. Employers often toss resumes with typos or misspellings, so ask several people to proofread yours. The Cover Letter: Your resume should be accompanied by a letter typed in a format similar to the sample below. First, state why you are interested in the company and where you heard about the opening. In the next two paragraphs (three at most), “sell” yourself: How will your skills be valuable to the employer? If an e-mailed resume was requested, type the cover letter in the e-mail itself Cover Letter R22 PERSONAL FINANCE HANDBOOK The Job Interview Appearance is important, so dress appropriately for all interviews. Be prepared to answer questions like “Why do you want to work here?” Interviewers often ask this to see if you’ve researched the company’s products, financial status, etc. You can request brochures from the company’s human resource department or find this information on the Internet. Be ready to explain how your skills qualify you for the job. Example: “Although I don’t have professional sales experience, I believe the skills I demonstrated selling school raffle tickets will be useful to you. According to the product vendor, my aggressive selling efforts increased sales by 22 percent.” Before you leave, hand the interviewer a typed sheet listing three references: names, titles, companies, and phone numbers. Send a brief thank-you letter; summarize why you’re right for the job and include your daytime phone number. Test Your Financial Fitness 1. Summarizing What is the purpose of a resume? 2. Listing List ten of your accomplishments that you think demonstrate skills an employer might want. 3. Applying Write a resume applying for a job you would like to have. In the “Experience” section, incorporate some of the accomplishments you listed. 4. Analyzing List four questions an employer might ask you during an interview and the answers you would give. Bob Daemmrich/Photo Edit PERSONAL FINANCE HANDBOOK R23 Paying Taxes: Simplify the annual event Who pays taxes? How do you file
a return? If you have an income or buy anything, you’ll pay taxes, regardless of your age. Being organized can make the process easier and maybe save you some money. What Taxes? The largest chunk of tax money goes to the federal government to fund programs such as the military, retirement security, space exploration, aid to foreign countries, and disaster recovery. When you see news reports about arguments in Congress over the budget, they’re arguing about how to spend your tax dollars. States, cities, and other entities also assess taxes for various purposes. Federal Income Tax Money you earn is taxable, including wages, tips, interest earned by bank accounts, and profits from the sale of property, like cars or stocks. Every year, the Internal Revenue Service (IRS) sets a taxable minimum income. If you earn more than that, it’s taxed—even income from selfemployment like babysitting or mowing lawns. The IRS is the agency within the U.S. Treasury Department that administers tax laws and provides forms and advice. The IRS also has the power to ensure that people pay what they owe. It can assess penalties; charge interest on unpaid tax; confiscate wages, bank accounts, or property; and even imprison debtors for nonpayment. It’s to your advantage to learn how to be a responsible taxpayer. Other Taxes States, cities, and some school districts assess income taxes to pay for schools, fire protection, police, highways, and similar services. You’ll file tax forms (returns) for those at the same time as you file your federal return. In most states, sales tax is added to the price of products sold in the state, including items bought online. Some states also assess this tax for online purchases when the seller does not have a “brick and mortar” store in that state. Then there are use (excise) taxes on things like gasoline, guns, gambling, tobacco, alcohol, and airline tickets. Finally, property owners pay taxes based on the value of their house or other real estate. Notorious mafia boss Al “Scarface” Capone was never convicted of most of the violent crimes he allegedly committed—but he spent eight years in prison for not paying his taxes. R24 PERSONAL FINANCE HANDBOOK Bettmann/Corbis Withholding If you haven’t received your first paycheck yet, it will be an eye-opener. Employers are required by law to deduct—
or “withhold”—a certain percentage of wages for taxes and other payments. These are listed on your pay stubs and include: • Federal taxes: Your employer will withhold a part of your pay based on a table from the IRS. The more you earn, the higher the amount withheld. • State and city taxes: The amount varies from state to state and from city to city. If you live in one city and work in another, your employer will withhold the tax for the city where you work. You may have to pay a separate income tax to the city where you live. • Social Security: The Social Security system provides a financial safety net for retirees and disabled citizens who contributed to the system throughout their working lives. Your employer matches your contribution. • Medicare: Everyone who receives Social Security benefits automatically receives Medicare Part A benefits, which partially cover stays in hospitals and skilled nursing facilities. (Other Medicare benefits must be purchased after you reach age 65.) Your employer matches this contribution as well. • Optional withholdings: You may decide to have your employer deduct more money. For example, you might get health insurance through your work. (See Insurance Matters on page R32.) Many employers also offer automatic savings plans and match a part of your contributions. (See Saving and Investing on page R6.) Typical Payroll Deductions Medicare $29 Federal taxes $107 Social Security $124 State and city taxes $104 Take-home pay $1,636 PERSONAL FINANCE HANDBOOK R25 Rock ‘n’ roll legend Jerry Lee Lewis’s personal property was confiscated by the IRS twice for nonpayment of taxes. IRS agents took his cars, furniture, and piano and showed up at his concerts to collect gate receipts. Similar tax problems have sidetracked the finances of rapper M.C. Hammer and country singer Willie Nelson, among others. Paperwork Four kinds of paperwork are used in the tax process: a form you fill out when you’re hired by a company (W-4), documentation of your income (W-2), your tax return, and records you’ll need to complete the return. W-4 Form When you start a job, you get a W-4 form on which you tell the employer how much money to withhold for federal income taxes. You choose the number of exemptions by asking yourself: Do I want to have the government keep the money for a year to make sure I don’t spend it before tax time? Or, would
I rather invest the money and make the payment in April? If more money is withheld than you owe, you’ll get a refund, which makes tax season more pleasant. But your money is with the government instead of earning interest in a bank account or investment. W-2 Form Every January, your employer(s) will send you a W-2 form listing your wages and withholdings for the previous year. If you don’t receive yours by mid-February, call the employer. You’ll attach this form to your tax return to prove your income. Tax Return Every year, you’ll complete a paper or online form telling the IRS how much tax you still owe or how much you believe should be refunded to you. If your income is below a certain level set annually by the IRS, you don’t have to file a return, but you should anyway. It’s the only way to get your refund. These guidelines may make it easier: • Forms: The IRS will mail you a form and instructions. Free forms are also available at post offices, banks, libraries, and on the IRS Web site at www.irs.gov. Be sure your name and Social Security number are correct. • Deadline: File any time between January 1 and April 15. If you file after April 15, you’ll be charged a penalty and, if money is owed, interest on the amount owed. INCOME TAX TERMS Earned income: Wages, tips, and taxable scholarship and fellowship grants. You’ll need to total these amounts to calculate your taxes. Unearned income: Interest (from bank accounts, stocks, etc.) and dividends or capital gains from stocks. Gross income: The total of earned and unearned income. Adjusted gross income: Gross income minus deductions. This is the ﬁ gure used to calculate the amount of your federal income tax. R26 PERSONAL FINANCE HANDBOOK Bettmann/Corbis • Deductions: The amount you pay is a percentage of your income minus any eligible deductions. These are expenses that meet IRS guidelines, like donations to charity and interest on college loans. • Preparing your return: Whether you’re filing a paper or electronic return, you’ll have to decide several things: 1. What status to file under. For now, select “single.” 2. Whether you want to take the standard deduction or list (itemize) your eligible deductions separately
. If you choose the standard deduction, you can use a simple 1040EZ form. Or, you can try to lower the amount you owe by itemizing deductions on a 1040 form. (More complicated taxes use other forms.) With this form, you may need help from a tax preparer, because tax regulations are complicated and change frequently. The IRS offers free advice by phone at 800-829-1040 or on its Web site. Some nonprofit organizations also offer free services to low-income taxpayers. Your Records You have two choices for tax recordkeeping: you can wait until tax time and search for documentation, or start a file in January and keep handy the papers you’ll need to file a return the next year. Here’s what tax experts recommend keeping for four to seven years: TAX RECORDS · Pay stubs and W-2 forms · Bank statements · Receipts for major purchases and charitable donations · Records of insurance and medical payments · Proof of any theft losses: value, date missing, proof of ownership Test Your Financial Fitness 1. Stating Who is responsible for paying income taxes? 2. Explaining Why do young workers have to contribute to the Social Security system? 3. Defining What is “adjusted gross income”? 4. Locating How can you find out how much money was withheld from your pay? 5. Listing List three forms you need to file your income tax. Nell Redmond/ZUMA/Corbis PERSONAL FINANCE HANDBOOK R27 Renting an Apartment: Know what to look for How much rent should you pay? How do you find the best deal? What if your roommate moves out? Moving to a new apartment can be exciting. Finding and renting one takes work. Making good decisions and meeting your responsibilities as a tenant can make it easier—and avoid money problems later on. The Rental Process Before you begin searching for an apartment, first consider how you’ll pay for it. Rent is only the beginning. Tenants usually pay for heat, air conditioning, electricity, and sometimes water and garbage pick-up. Many landlords expect the first and last months’ rent in advance, plus a security deposit they hold until tenants move. If you damage the property, your deposit pays for repairs. Any remainder should be returned to you, sometimes with interest, depending on local laws. If you own expensive items, you may want to add the cost of renter’s insurance.
Remember: rent plus utilities should generally equal no more than one-fourth of your monthly income. Finding a Home Once you know how much you can afford, ask yourself: • How close to school or a job do I want to live? • Will I have roommates? • How many rooms do I need? • What else is important to me: Security? Noise level? Storage? Laundry facilities? Begin your search with friends, newspaper ads, the Internet, bulletin boards, and/or rental agencies. Make appointments to view several apartments and be prepared to provide: • identification • social security number • income amount and employer’s name and phone number • contact numbers for references (current or previous landlords, teachers, coaches, or employers) who can vouch for your character R28 PERSONAL FINANCE HANDBOOK age fotostock/SuperStock Signing a Lease You’ll be required to sign a lease or a rental agreement. This is a binding legal contract, so read it—fine print and all—before signing. A lease requires the tenant to pay rent for the number of months listed—even if the tenant moves before the lease ends. Rental agreements are from month to month. The Walk-Through Before signing anything, “walk through” the apartment with the landlord and note its condition. To safeguard your deposit, make sure any damages are listed on the lease. Take dated photos before you move in and when you move out. The Right Roommates If you plan to share an apartment with roommates, be sure that they can afford the apartment and that they sign the lease to ensure equal legal responsibility. Make it clear that if they move before the lease ends, they’re responsible for either paying their share of the rent until the lease ends or for finding replacement roommates. Agree on house rules up front: overnight guests, parties, chores, etc. Rights and Responsibilities Your apartment is your home, but it belongs to the property owner. Landlords must keep it structurally safe and sanitary, and provide access to heat, water, and electricity. They can enter your apartment only to make repairs or show it to prospective tenants. In some states, they must give you advance notice. Prospective landlords can check references, employment, and credit, but it is against the law to discriminate on the basis of race, national origin, religion, gender, familial status, or disability. A local tenants’ union can provide information and advice. You�
�re responsible for paying rent on time, keeping the apartment clean and in good condition, following the terms of the lease, and being considerate of neighbors. Remember: being a responsible tenant makes your new landlord a good reference for your next one. Test Your Financial Fitness 1. Explaining What are two reasons for taking good care of a landlord’s property? 2. Listing What costs are involved in renting an apartment? 3. Applying List four factors that would affect your choice of an apartment, in order of importance to you. Then explain why they’re important WALK-THROUGH CHECKLIST ❑ Sturdy door and window locks ❑ Working smoke and carbon monoxide detectors ❑ Fire exits in front and back ❑ Enough rooms, closets, and storage space ❑ Damages such as: ____ broken kitchen appliances or bathroom ﬁ xtures ____ stains, loose tiles, or large scratches on ﬂ oors ____ cracks in windows or walls ____ stained or peeling wallpaper, or garish paint colors Kayte M. Deioma/Photo Edit PERSONAL FINANCE HANDBOOK R29 Buying a Car: Drive a good deal Is a cool car in your future? Where will you get the money? Picture yourself in the car of your dreams. Wait: Now picture yourself under a mountain of debt. Before you rush to a Ferrari dealer, do the homework that can help you get a good deal on a vehicle that meets your needs now—and down the road. Choosing Your Car The most important step in the car-buying process is figuring out how much you can afford. Do this before deciding which car you want. In general, car payments should be less than 15 percent of your monthly income. Do the Research Check the Internet or consumer publications for comparisons of: • Safety: Is the car likely to protect you in a crash or poor road conditions, and avoid rolling over? Also find unbiased reviews at www.nhtsa.dot.gov. • Performance: The number of miles per gallon of gasoline (fuel efficiency) and the impact a car makes on the environment (emissions) vary with the type of car. You can check both at www.fueleconomy.gov. High gas prices alone make it essential to check mileage. Hybrid cars are designed to use less gas and pollute less by running on a combination of gas and electricity, but they cost more up front than gasoline-powered cars.
• Repairs: Consumer publications list which vehicles require fewer repairs and cost less to fix. Compare Financing Dealers make most of their profit on loans, not car sales. Before discussing financing with a dealer, research loans at banks and other financial institutions. Also check your credit score, since it determines whether you’ll get a loan and how much interest you’ll pay. (See Credit and You on page R10.) If you’re applying for credit at more than one place, do it within a 14-day period. Otherwise, your credit rating will drop because of “too many inquiries.” Every car has a “pink slip,” or title—a document that proves ownership. You won’t get the pink slip until you’ve made all the payments. Meanwhile, the seller gives you a receipt you’ll need to register your car and buy license tags. R30 PERSONAL FINANCE HANDBOOK Getty Images/SW Productions High Cost of Driving The average annual cost of driving a new car in the United States is more than 56 cents per mile, including gas, oil, maintenance, tires, insurance, licenses, registration, vehicle depreciation, and finance charges. That’s $8,410 a year! Getting a Deal A new car is exciting, offers warranties, and requires fewer repairs. But a new car depreciates (loses value) the minute you drive it off the lot. Used cars depreciate more slowly and cost a lot less to begin with. Some even offer limited warranties. New Cars A cool head and a game plan can save you thousands of dollars. Here are some tips: 1. Take your time. Don’t let “special offers” or high-pressure sales tactics rush you into buying on your first visit. 2. Find the fair price. On the Internet, find the factory invoice price, which is the price the dealer paid for the car. This is not the “sticker” price on the car’s window (a higher Manufacturer’s Suggested Retail Price, or MSRP). Offer to pay that price plus a fair profit, usually 3 to 5 percent. 3. Get bids. Ask five dealers for written bids. Those bids are your bargaining edge. Used Cars Check the Internet or newspapers for ads. If you’re buying from a dealer, ask for names and phone numbers of previous customers. Contact them or the Better Business Bureau for any
complaints against the dealer. Weed out the “lemons” with these tips: • Drive the car, noticing odd noises and how it handles. • Look at the title to see if the car was “salvaged.” That means an insurer declared it a “total loss”; it probably has structural damage that could affect safety and performance. • Have a mechanic you trust or the American Automobile Association (AAA) test the car. If the seller won’t allow testing, don’t buy the car. • Ask to see receipts for recent repairs. Also get the vehicle identification number (VIN) (usually on the dash). At the CARFAX Web site, check the car’s history. Test Your Financial Fitness 1. Explaining What is the most important thing to consider when choosing a car? List three other important factors. 2. Listing List three things you can do to avoid getting a “lemon” when you buy a used car. 3. Describing Describe the process a smart car buyer would use before visiting a car dealer. 4. Defining What is the difference between the retail price and the factory invoice price? PERSONAL FINANCE HANDBOOK R31 Insurance Matters: Protect yourself Is your car legal? Who pays if you get sick or robbed? Nobody enjoys thinking about—or paying for—insurance. If you have an emergency, you’ll be glad you did. How It Works Insurance is like a life raft. You pay an insurance company monthly or quarterly premiums. Then, if something bad happens, such as a traffic accident, an illness, or an apartment fire, insurance helps you stay afloat financially. If nothing bad happens, the company keeps the money. A document detailing what your insurance covers is a policy. Most policies require a deductible, an amount you have to pay before the insurance kicks in. Example: You chose car insurance with a $1,000 deductible and you’re involved in an accident. You’ll have to pay the first $1,000 to fix the car. The insurance company will pay the rest, up to the amount you’ve purchased. If you had chosen a $500 deductible, you’d pay only the first $500, but your premiums would be higher. TYPES OF CAR INSURANCE Collision: Damage to your car, regardless of who caused the accident. Comprehensive: Damage to your car not caused by an
accident, such as theft, vandalism, and natural disasters. Liability: Bodily injury and property damage to others, plus legal costs. State laws determine how much coverage you must have. Medical: Medical expenses for everyone injured, regardless of fault. Personal injury protection: Medical expenses for the insured driver, regardless of fault. Uninsured motorist: Damage to your car in an accident caused by a driver with no liability insurance. Underinsured motorist: Damage to your car in an accident caused by someone with insufficient liability insurance. Rental reimbursement: Car rental if your vehicle cannot be driven after an accident. R32 PERSONAL FINANCE HANDBOOK Robert J. Bennett/age fotostock INSURANCE TIPS · Find out if the policy covers the amount it would cost you to replace the item (replacement cost), or only the amount the item was worth before it was damaged, lost, or stolen (actual cash value, or ACV). · Read the ﬁ ne print before · Document your property with photos and keep receipts. signing a policy. premium. · To lower insurance costs: · Shop to get the lowest · Maintain good credit. · Drive a low-proﬁ le car, not one that’s ﬂ ashy or expensive to repair. · Drive safely and ask about discounts for “good students,” nonsmokers, nondrinkers, and good drivers. · Get an education: some insurers charge less to customers with higher educational levels. · If your car is worth less than $1,000, consider dropping collision and comprehensive coverage—but not liability. · Install safety and anti-theft devices (airbags, alarms). · Buy several types of insurance from the same company to qualify for a multiple-policy discount. Types of Insurance Some types of insurance are useful to you now, but most can wait until you’re out of school and have more responsibilities. Auto It’s illegal to drive in most states without basic liability insurance to cover property damage and injuries to others; some also require personal injury coverage for the driver. But you may want to buy more insurance than the law requires. Teenage drivers are involved in four times as many crashes as other age groups and are three times more likely to die in a traffic accident. Auto insurance helps pay the costs of injuries, car and property damage, and lawsuits. Health Even if you’re healthy, health insurance is a good idea at any age. It pays for
hospitalization, surgery, exams, and other medical costs. Some employers pay part of the cost for employees and their families. Health insurance has deductibles and most plans require a small payment (co-payment, or “co-pay”) whenever you visit a doctor’s office. Property What would it cost to replace everything you own: computer, TV, clothes, bicycle? If it’s more than you could afford, it should be insured against theft, fire, and other dangers. Renters insurance covers the contents of rented property and injury to visitors. Homeowners insurance covers a house, its contents, and visitor injuries. Separate insurance is needed for flood or earthquake damage. Other Insurance Life insurance provides financial support to loved ones when a person dies. Some types of life insurance offer lending or retirement income features. Disability insurance partially replaces income if you can’t work because of illness or injury. Long-term care insurance pays for care in nursing homes, assisted living facilities, or private homes when an elderly or disabled person can’t manage daily tasks. Test Your Financial Fitness 1. Stating What type of insurance covers a stolen car? 2. Determining Cause and Effect Why do you think most states require drivers to have liability insurance, but not collision or comprehensive? 3. Defining What is a deductible? 4. Listing What two disasters are not covered by renters or homeowners insurance? 5. Naming Name three ways to cut the cost of car insurance. PERSONAL FINANCE HANDBOOK R33 Skills Handbook CONTENTS Critical Thinking Skills Identifying the Main Idea...............R35 Determining Cause and Effect............R36 Making GeneralizationsR37 Distinguishing Fact from Opinion..........R38 Formulating Questions................R39 Analyzing InformationR40 Evaluating Information................R41 Making Inferences..................R42 Comparing and Contrasting.............R43 Detecting Bias.....................R44 Synthesizing Information....
...........R45 Drawing Conclusions.................R46 Making Predictions..................R47 Problems and SolutionsR48 Economics Skills Using Line Graphs..................R49 Using Bar and Circle Graphs.............R50 Using Tables and Charts...............R51 Sequencing Events..................R52 Comparing Data....................R53 Understanding Percentages.............R54 Determining Averages................R55 Understanding Nominal and Real Values......R56 Understanding Interest Rates............R57 Interpreting Political Cartoons............R58 Reading Stock Market Reports............R59 R34 SKILLS HANDBOOK Critical Thinking Skills Identifying the Main Idea Why Learn This Skill? Finding the main idea in a reading passage will help you see the “big picture” by organizing information and assessing the most important concepts to remember. Learning the Skill Follow these steps when trying to identify the main idea: • Determine the setting of the passage. • As you read the material, ask: What is the purpose of this passage? • Skim the material to identify its general subject. Look at headings and subheadings. • Identify any details that support a larger idea or issue. • Identify the central issue. Ask: What part of the selection conveys the main idea? ▼ Industrial robot Practicing the Skill Read the excerpt below and answer the questions that follow. Industrial robots can’t speak English or Chinese, but they can communicate very well with their controllers—something they do 24/7, with no vacations and no health care. They don’t receive a pension after they’re retired, either. Instead, they get
recycled or remanufactured and go to work again. The average wage for a U.S. warehouse or distribution worker is around $15 per hour (plus benefits). The average wage for this same work in China is about $3 per hour. The average wage for a skilled UAW U.S. automobile worker is $25 to $30 per hour, plus the staggering costs of health care coverage and retirement. The average cost per hour to operate an industrial robot is 30 cents per hour according to Ron Potter, director of robotic technologies of Factory Automation Systems. —www.forbes.com, January 3, 2006 1. Where did this article appear? 2. When was it written? 3. What is the main idea of this article? 4. What additional details support the main idea? Applying the Skill Bring to class an article from a newspaper, magazine, real-estate buying guide, or other publication. Identify the main idea, and explain why it is important. AP Photo/Kai-Uwe Knoth SKILLS HANDBOOK R35 Critical Thinking Skills Determining Cause and Effect Why Learn This Skill? Determining cause and effect involves considering why an event occurred. A cause is the action or situation that produces an event. What happens as a result of a cause is an effect. Learning the Skill To identify cause-and-effect relationships, follow these steps: • Identify two or more events or developments. • Decide whether one event caused the other. Look for “clue words” such as because, led to, brought about, produced, as a result of, so that, since, and therefore. • Look for logical relationships between events, such as “She overslept, and then she missed her bus.” • Identify the outcomes of events. Remember that some effects have more than one cause, and some causes lead to more than one effect. Also, an effect can become the cause of yet another effect. Practicing the Skill The classic cause-and-effect relationship in economics is between price and quantity demanded/quantity supplied. As a price for a good rises, the quantity demanded goes down and the quantity supplied rises. R36 SKILLS HANDBOOK AP Photo/Steve Helber 1. Look at the photo above. What might cause a store to have a big sale on plasma televisions? What is the effect on consumers? 2. Now look at the demand curve for plasma televisions below. If the price
is $5,000, how many will be demanded per year? If the price drops to $1,000, how many will be demanded per year? Applying the Skill In your local newspaper, read an article describing a current event. Determine at least one cause and one effect of that event. Critical Thinking Skills Making Generalizations Why Learn This Skill? Generalizations are judgments that are usually true, based on the facts at hand. If you say, “We have a great soccer team,” you are making a generalization. If you also say that your team is undefeated, you are providing evidence to support your generalization. Generalizations are useful in the study of economics because they help economists see trends. Examples include the generalizations that men earn more than women and that prices go down when there is more competition. There are exceptions to both of these statements, but they are generally true. Learning the Skill To learn how to make a valid generalization, follow these steps: • Identify the subject matter. • Collect factual information and examples relevant to the topic. • Identify similarities among these facts. • Use these similarities to form some general ideas about the subject. Practicing the Skill Read the excerpt, then identify whether each generalization that follows is valid or invalid. Explain your answers. Few times in a young person’s life are as stressful as the first year out of college. If all goes well, you land a dream job in your chosen profession. But now everything hangs in the balance. Do well in your rookie job and it could put your career into overdrive. Your employer may shower you with promotions, pay raises, and increased responsibility, and you’ll be able to leapfrog ahead of the competition in your next position. Do poorly, and you may be sent down to the minors. The good news: Barring any serious infractions, relatively few people get completely sidetracked in their first year on the job, as most employers allow for a learning curve. The bad news is the reputation you make for yourself will be yours for a good long time—the corporate equivalent of your permanent academic record— coloring the way people see you for many years. —BusinessWeek Online, September 18, 2006 1. The first year out of college is one of the most stressful times in a person’s life. 2. All young workers who do well in their first year will have successful careers. 3. Most employers will tolerate a few rookie mistakes. 4. A
Questions Why Learn This Skill? Asking questions helps you to process information and understand what you read. Learning the Skill Follow these steps to formulate questions as you read: • Think about questions you have. Often you can find the answers in the next paragraph or section. • Ask who, what, when, where, why, and how about the main ideas, people, places, and events. • Reread to find answers to your questions. Read the following excerpt, and then study the sample questions below. A global fashion icon and megabrand, Hello Kitty is one of the most bizarre stories in modern-day marketing. After all, we are talking about a minimalist graphic rendering of a cat, one with a moon-shaped head and no mouth. Yet this simplistic image brings in a half-billion dollars annually in franchise fees for Tokyobased corporate parent Sanrio. Licensees in Japan, the U.S., and Europe have plastered the cutesy image on 20,000-plus products worldwide—everything from waffle makers to diamond-studded luxury watches. • Who or what is Hello Kitty? • Why is Hello Kitty an interesting marketing story? • Where is Hello Kitty popular? Practicing the Skill Read the second excerpt about Hello Kitty. Then, using a chart like the one below, ask questions about the excerpt and reread the selection to find the answers. Question Answer Who? What? Where? When? Why? How? The business mind behind [Hello Kitty] is Shintaro Tsuji, the founder, president, and CEO of Sanrio. In Japan, Tsuji is considered the closest thing the country has to a Walt Disney. He turned Sanrio, founded in 1960 as a small trinket maker, into a nearly $1 billion character-goods purveyor and theme park operator. Hello Kitty came on the scene in 1974 and appealed primarily to Japanese girls age 5 to 15. Today, the fabulous feline is embraced by Parisian fashion houses, U.S. pop divas such as Mariah Carey and Christina Aguilera, and legions of fashion-conscious women in rich world markets. —BusinessWeek, June 23, 2006 Applying the Skill Select any section of this textbook to read or reread. Make a questioning chart to help you ask and answer five or more questions about the section as you read SKILLS HANDBOOK R39 Critical Thinking Skills Analyzing Information (COIN) Act that calls for the modernization of America’s
currency system. The bill includes implementing a rounding system for cash transactions that would eliminate the penny, increasing the production and circulation of the golden dollar while phasing out the dollar bill, and studying whether a change in the composition of coins to include less expensive metals would be worthwhile. —BusinessWeek, July 19, 2006 1. What topic is being discussed? 2. What are the main points of this excerpt? 3. Summarize the information in this excerpt, and then provide your analysis based on this information and what you already know about the subject. Applying the Skill Select an issue in economics that is currently in the news, such as Social Security, oil prices, the national debt, or taxation. Read an article or watch a news segment about the issue. Analyze the information and make a brief statement of your own about the topic. Explain your thinking. Why Learn This Skill? The ability to analyze information is important in deciding what you think about a subject. For example, you need to analyze the effects of international free trade versus the effects of trade restrictions to decide where you stand on the issue of U.S. trade policy. Learning the Skill To analyze information, use the following steps: • Identify the topic that is being discussed. • Examine how the information is organized. What are the main points? • Summarize the information in your own words, and then make a statement of your own based on your understanding of the topic and on what you already know. Practicing the Skill Read the excerpt and answer the questions that follow. In May, the U.S. Mint informed Congress that the cost of making a penny and a nickel will soon exceed the actual value of each coin.... The U.S. mint estimates that by the end of the fiscal year, the cost of producing one penny will come to around 1.23 cents.... The news revived efforts to take the penny out of circulation. On July 18, Representative Jim Kolbe (R., Ariz.) introduced the Currency Overhaul for an Industrious Nation R40 SKILLS HANDBOOK Jan Cobb Photography Ltd/Getty Images Critical Thinking Skills Evaluating Information Why Learn This Skill? We live in an information age. The amount of information available can be overwhelming, and it is sometimes difficult to know when information is true and useful. You need to evaluate what you read and hear to determine the reliability of the information presented. Learning the Skill When evaluating information to determine its reliability, ask yourself the following questions as you read
: • Is there bias? In other words, does the source unfairly present just one point of view, ignoring any arguments against it? • Is the information published in a credible, reliable publication? • Is the author or speaker identified? Is he or she an authority on the subject? • Is the information up-to-date? • Is the information backed up by facts and other sources? Does it seem to be accurate? • Is it well-written and well-edited? Writing that has errors in spelling, grammar, and punctuation is likely to be careless in other ways as well. Practicing the Skill Look at the following statements about oil prices. Rank them in order of most reliable to least reliable, and then explain why you ranked them as you did. companys are tryng to goug us. Greedy oil “ Oil prices are so high, becuz big oil executives, are driven up prices to get richer. ” —published on an individual’s blog on the Internet “ It’s certainly clear that high oil prices aren’t dulling demand for energy products. According to the Energy Dept.’s Energy Information Administration (EIA), U.S. demand for gasoline in June was 9.5 million barrels per day, a record. ” —BusinessWeek, July 7, 2006 “ The single biggest factor in the inflation rate last year was from one cause: the skyrocketing prices of OPEC oil. We must take whatever actions are necessary to reduce our dependence on foreign oil—and at the same time reduce inflation. ” —President Jimmy Carter, January 23, 1980 Applying the Skill Find an advertisement that contains text and bring it to class. In a brief oral presentation, tell the class whether the information in the advertisement is reliable or unreliable and why. SKILLS HANDBOOK R41 Critical Thinking Skills Making Inferences Why Learn This Skill? To infer means to evaluate information and arrive at a conclusion. When you make inferences, you “read between the lines,” or use clues to figure something out that is not stated directly in the text. chicken dish, is their best seller but not as familiar in Texas as fajitas and hamburgers. If they get their way, it will be. And not just on the coasts. The two are well on their way to cracking a frontier in fast food: creating a national Chinese fast-food chain. —USA Today, September 11, 2006 1. What facts
are presented in the passage? 2. What can you infer about the importance of educating Panda Express customers about Chinese food? Explain. 3. Can you also infer that there is currently no national Chinese fastfood chain? Explain. Applying the Skill Look over the headlines in today’s Business and Finance section in your local newspaper. What can you infer about what economic issues are important in your community, the nation, and the world right now? Skim an article. Can you tell how the writer feels about the topic? How? Learning the Skill Follow these steps to make inferences: • Read carefully for stated facts and ideas. • Summarize the information and list important facts. • Apply related information that you may already know. • Use your knowledge and insight to develop some logical conclusions. Practicing the Skill Read the passage and answer the questions that follow. Texans know their barbecue. But lots of them apparently don’t know their Chinese food. The top question at the 10 Panda Express stores opened in Texas this year is “What’s orange chicken?” Andrew and Peggy Cherng, the husbandand-wife team who created Panda Express, know that answering that question and many others about their menu is part of the diner-education process that has turned a one-store eatery inside a California mall into an 820-store Chinese food empire. Orange chicken, a lightly sweetened fried R42 SKILLS HANDBOOK The McGraw-Hill Companies Critical Thinking Skills Comparing and Contrasting Why Learn This Skill? When you make comparisons, you determine similarities among ideas, objects, or events. When you contrast, you are noting differences between ideas, objects, or events. Comparing and contrasting are important skills because they help you choose among several possible alternatives. Practicing the Skill Study the advertisements for two computers at the bottom of the page, and then answer the questions that follow. 1. How are these products similar? 2. How are they different? 3. Which of these two computers would you choose? Why? Applying the Skill Survey your classmates about an issue in the news. Summarize the opinions and write a paragraph or two comparing and contrasting the different opinions Learning the Skill To learn how to compare and contrast, follow these steps: • Identify or decide what two or more items will be compared and/or contrasted. • To compare, determine a common area or areas in which comparisons can be drawn. Look for similarities within these areas. • To contrast, look for areas that
are different. These areas set the items apart from each other. SKILLS HANDBOOK R43 Critical Thinking Skills Detecting Bias Why Learn This Skill? Most people have a point of view, or bias. This bias influences the way they interpret and write about events. Recognizing bias helps you judge the accuracy of what you hear or read. Learning the Skill Follow these steps to learn how to recognize bias: • Examine the author’s identity, especially his or her views and particular interests. • Identify statements of fact. • Identify any expressions of opinion or emotion. Look for words that have positive or negative overtones for clues about the author’s feelings on a topic. • Determine the author’s point of view. • Determine how the author’s point of view is reflected in the work. Practicing the Skill Read the passage and answer the questions that follow. Sometime in October the U.S. will join China and India in the very small club of countries with at least 300 million residents. This really is a big deal, like hitting 700 home runs in baseball. No other country is expected to reach the 300 million mark for at least 30 more years.... R44 SKILLS HANDBOOK But here are a couple of questions for you to ponder as the U.S. gets closer to the big 300: Is it coincidence that the three countries with the largest populations also have the most dynamic economies in the world? And is it coincidence that the most innovative major industrialized country, the U.S., also has the fastest growing population and the most young people? No coincidence at all, as it turns out. —BusinessWeek, September 5, 2006 1. What statements of fact are presented in this passage? 2. What opinions are stated? 3. What is the purpose of this passage? 4. What evidence of bias do you find? Does the author think it is a good thing or a bad thing that the United States is hitting this population milestone? Applying the Skill Find an editorial in the newspaper that deals with a topic of specific interest to you. Apply the steps for recognizing bias to the editorial. Write a paragraph summarizing your findings. Critical Thinking Skills Synthesizing Information Source B “Under Steve Forbes’ plan the flat [income tax] rate would be 17%. All families would get generous personal exemptions, so that a family of four would not pay taxes until its income exceeded $46,000. To encourage growth,
the Forbes plan exempts income that is saved and invested. Which means that the Forbes plan is really a consumption tax. It taxes people based on what they take out of the system, not on what they put in.” —Forbes, September 29, 2005 1. What is the main subject of each source? 2. Does Source B support or contradict Source A? Explain. 3. Summarize what you learned from both sources. Applying the Skill Find two sources of information on banking practices. What are the main ideas in each? How does each add to your understanding of the topic? ▼ Steve Forbes Why Learn This Skill? Synthesizing information involves combining information from two or more sources. Information gained from one source often sheds new light upon other information. Learning the Skill Follow these steps to learn how to synthesize information: • Analyze each source separately to understand its meaning. • Determine what information each source adds to the subject. • Identify points of agreement and disagreement between the sources. Ask: Can Source A give me new information or new ways of thinking about Source B? • Find relationships between the information in the sources. Practicing the Skill Read the passages and answer the questions that follow. Source A “The flat tax. In the eyes of many fiscal conservatives, it’s the Holy Grail of public policy: One low income tax rate paid by all but the poorest wage-earners, who are exempt. No loopholes for the rich to exploit. No graduated rates that take a higher percentage of income from people who work hard to earn more. No need for a huge bureaucracy to police fiendishly complex tax laws.” —BusinessWeek, September 26, 2005 Munshi Ahmed/Bloomberg News/Landov SKILLS HANDBOOK R45 Critical Thinking Skills Drawing Conclusions 1. What topic is the writer describing? 2. What facts are given in the selection? 3. What do you already know about the subject? 4. What conclusion can you draw about why small-car sales are increasing while sales of large sport-utility vehicles are decreasing? Applying the Skill Read one of the “People & Perspectives” features about a prominent economist or entrepreneur in this text. Using the information in the profile, what can you figure out about the life of the person described? Draw three conclusions about this famous person’s life and ideas. ▼ DaimlerChrysler’s Smart Car Why Learn This Skill? A conclusion is a logical
understanding that you reach based on details or facts that you read or hear. When you draw conclusions, you use stated information to figure out ideas that are unstated. Learning the Skill Follow these steps to draw conclusions: • Read carefully for stated facts and ideas. • Summarize the information and list important facts. • Apply related information that you may already know. • Use your knowledge and insight to develop some logical conclusions. Practicing the Skill Read the passage and answer the questions that follow. In the automotive business these days, big is out and small is in. Sales of large sport-utility vehicles are down 45%. Small-car sales have increased 70%. Of course, having suffered from $3-plus-a-gallon gasoline for longer, the rest of the world has been thinking small for years. And there is no production car smaller than the Smart Car from DaimlerChrysler. But can a car that is just slightly more than 8 feet long and 5 feet high with 15-inch wheels co-exist with the mastodons that rule the American road?... Only time will tell. —BusinessWeek, August 24, 2006 R46 SKILLS HANDBOOK Bill Pugliano/Getty Images Critical Thinking Skills Making Predictions Why Learn This Skill? Predicting future events can be difficult and sometimes risky. The more information you have, however, the more accurate your predictions will be. Making good predictions will help you understand what you read. Learning the Skill To help you make predictions, follow these steps: • Gather information about the decision or action. • Use your knowledge of history and human behavior to identify what consequences could result. • Analyze each of the consequences by asking: How likely is it that this will occur? Practicing the Skill Read the passage and answer the questions that follow. Google and Yahoo! have been raking in the cash for years, as large advertisers shift more spending to online media. But judging by recent earnings figures from the Internet leaders, the trend is just hitting its stride.... Driving this breakneck growth [in Internet advertising] is the companies’ ability to draw advertising dollars onto the Internet—and away from other media. In 2002, 2.5% of U.S. ad dollars were spent online. The figure is expected to reach 4.6% this year [2005] and 7.5% by 2009, according to researcher eMarketer. —BusinessWeek, October 21, 2005 1. What trend does the
passage describe? 2. Do you think this trend is likely to continue? 3. On what do you base this prediction? 4. What are three possible consequences of this trend? Applying the Skill Analyze three articles in the business section of a newspaper. Predict three consequences of the actions in the articles. On what do you base your predictionsl) Scott Barbour/Getty Images, (r) Scott Barbour/Getty Images SKILLS HANDBOOK R47 Critical Thinking Skills Problems and Solutions Why Learn This Skill? Suppose you are not doing well in basketball. You wonder why you cannot do better since you always go to practice, try your best, and pay attention to the coach’s instructions. In order to improve a situation such as this one, you need to identify a specific problem and then take actions to solve it. Learning the Skill Follow these steps to help you through the problem-solving process: • Identify the problem. • Gather information. • List possible solutions. • Consider the advantages and disadvantages of each solution. • Choose the best solution to your problem and carry it out. • Evaluate the effectiveness of the solution. Practicing the Skill Read the selection and answer the questions that follow. The soaring price of cement is having a disproportionate effect on lower-middle to middle-income families. Why? Because the denser housing that tends to get built for them uses lots of concrete, which is made from cement, sand, gravel, and water. Designs with lots of concrete are becoming so expensive to build that they’re getting out of the potential buyers’ price range, says Tim Sullivan, president of Sullivan Group Real Estate Advisors.... [Sullivan says] that because of the high price of cement and concrete products, builders are putting more of their efforts into homes that are built primarily of lumber. These are single-family homes or town homes that tend to be aimed at higher-income families. Tall condo and apartment buildings made of concrete are so expensive to build that these days they’re aimed almost exclusively at wealthier buyers.... —BusinessWeek Online, June 9, 2006 1. What problem does the writer present in this selection? 2. What options are available to solve this problem? Can you think of any other options? 3. Explain the solution that was implemented according to the selection. 4. Evaluate the solution described in the passage. Was it successful? How do you determine this? Applying the Skill Select an economic problem that needs to
be solved. The problem can be anything from how you plan to pay for an upcoming expense to how the United States might solve the problem of funding Social Security long-term. Create a simple presentation in which you identify the problem, list options with their advantages and disadvantages, choose a solution, and evaluate the chosen solution. R48 SKILLS HANDBOOK Economics Skills Using Line Graphs Why Learn This Skill? A graph, like a picture, may present information in a more concise way than words. Line graphs are drawings that compare numerical values. They often are used to compare changes over time or differences between places, groups of items, or other related events. Learning the Skill Follow these steps to learn how to understand and use line graphs. Then answer the questions below. 1. Read the title of the graph. This should tell you what to expect or look for. 2. Note the information on the left side of the graph—the vertical axis. The information being compared usually appears on this axis. 3. Note the information along the bottom of the graph—the horizontal axis. Time often appears along this axis. 4. Determine what the line(s) or curve(s) symbolizes. Select a point on the line, then note the date below this point on the horizontal axis and the quantity measured on the vertical axis. 6. Analyze the movement of the line (whether increasing or decreasing over time) or compare lines (if more than one is on the graph) to determine the point being made. Practicing the Skill 1. About how many people in wholesale and retail businesses were self-employed in 2003? In 2004? 2. How many more people were self- Applying the Skill to Economics 1. What trends are shown on the graph? 2. What economic forces might have influenced the changes shown on the graph? employed professionals in 2003 than in 2001? 3. What kinds of jobs do you think are represented in each category shown? SKILLS HANDBOOK R49 Economics Skills Using Bar and Circle Graphs Why Learn This Skill? Bar graphs are often used to show changes over time or to compare quantities between similar categories of information. Circle graphs usually show the relationship of parts to a whole. 2. Examine a bar on the graph. Note the date Learning the Skill Follow these steps to learn how to understand and use bar graphs. below the bar on the horizontal axis and the quantity measured on the vertical axis. Read the title and labels. They tell you the topic, what is being compared,
and how it is counted or measured. 3. Analyze the change over time or compare bars to determine the point being made. Learning the Skill Follow these steps to learn how to understand and use circle graphs. 1. Examine the title to determine the subject. 3. Compare the relative sizes of the circle segments, thus analyzing the relationship of the parts to the whole. 2. Read the legend to see what each segment represents. High-School Dropouts (in thousands) 33% 14% 53% Not in labor force Employed Unemployed Source: Statistical Abstract of the United States, 2004. Practicing the Skill 1. In the bar graph, what year had the lowest spending on air travel? 2. According to the circle graph, what percentage of high school dropouts are employed? Applying the Skill to Economics 1. Using the bar graph, what projection could you make about the future of air transportation? 2. Based on the circle graph, what can you tell about the employment chances of highschool dropouts? R50 SKILLS HANDBOOK Economics Skills Using Tables and Charts Why Learn This Skill? Tables and charts are often used to show comparisons between similar categories of information. Tables usually compare statistical or numerical data. Tabular data is presented in columns and rows. Charts often show a wider variety of information than tables. Learning the Skill Follow these steps to learn how to understand and use tables. Then answer the questions below. 1. Read the title of the table to learn what content is being presented. 2. Read the headings in the top row. They define the groups or categories of information to be compared. 3. Examine the labels in the left-hand column. They describe ranges or subgroups and are often organized chronologically or alphabetically. Note the source of the data. It may tell you about the reliability of the information in the table. 5. Compare the data presented in the other columns. This is the body of the table. Practicing the Skill 1. What age group has the most workers? 2. What age group has the smallest percentage of female full-time workers? 3. Which age groups have a higher percentage of male than female full-time workers? Applying the Skill to Economics 1. What age-related trends do you notice in this table? 2. What conclusions could you draw from this data about the peak working years for most U.S. workers? 3. At what age do people apparently begin to retire from full-time work? SKILL
S HANDBOOK R51 Economics Skills Sequencing Events Why Learn This Skill? Sequencing involves placing facts in the order in which they occurred. Sequencing helps you deal with large quantities of information in an understandable way. In economics, sequencing can help economists understand cause-and-effect relationships between events. This in turn helps analysts to predict outcomes of various events or policies. Learning the Skill To sequence events, follow these steps: • Look for dates or clue words that provide you with chronological order: in 2007, the late 1990s, first, then, finally, after the Great Depression, and so on. • Arrange facts in the order in which they occurred. • You might use an organizational tool such as a time line to sequence events so that it is easy to see a chronology as well as any causeand-effect relationships that occur between events. Practicing the Skill Read the passage and answer the questions that follow. At about eight in the morning on June 16, a young man named Remi Frazier from Fort Collins, Colo., sat down on a bench in Manhattan’s Columbus Circle, glued a cell phone to his ear, and spread a New York City map across his lap. By early afternoon he had launched an unlikely entrepreneurial project— to make $1 million within one month, using only a cell phone, a digital video camera, and a $100 bill. His self-imposed set of rules also meant he had made no advance contact with anyone in the city. To achieve his goal, Frazier, 27, planned to build a volunteer network of business consultants, conceptualize and design a product, conduct market research for that product, and finally manufacture and sell it on a wide scale. He would have 30 days to complete what a startup usually takes years to do. —BusinessWeek, June 30, 2006 1. What dates or clue words in this passage can help you determine the sequence of events being described? 2. Fill in a time line such as the one below to show the sequence of events described in the selection. First Event Final Event Applying the Skill to Economics Find a newspaper or magazine article about a local business. Sequence the information presented in the article in a time line or chart. R52 SKILLS HANDBOOK Economics Skills Comparing Data Why Learn This Skill? Economists compare data in order to identify economic trends, draw conclusions about the relationships of sets of economic information, analyze the effectiveness of economic programs, or perform other types of analysis. It is often easiest to compare data that
is organized in charts, tables, or graphs. Learning the Skill Follow these steps to compare and contrast data: • Look at each set of data separately to understand what each one means on its own. • Look for relationships among the sets of data. Ask yourself: How are these sets of information connected to each other? • Note similarities and differences among the sets of data. • Draw conclusions about what the sets of data, taken together, might mean. Practicing the Skill Compare the data in the charts at the bottom of the page, and then answer the questions below. 1. Look at the left graph. What was the overall trend in manufacturing employment from 1996 to 2005? 2. Look at the right graph. What was the overall trend in professional and business employment during the same period? 3. How are the data in the two charts related? 4. What conclusions can you draw about the two areas of employment? Applying the Skill to Economics Look in a world almanac or on the Internet to find two sets of data about an economic topic of your choice. Compare the data and draw at least two conclusions based on your analysis. Share your conclusions with a partner SKILLS HANDBOOK R53 Economics Skills Understanding Percentages Why Learn This Skill? If you shop, you probably like seeing the word percent, as in “30 percent off.” Stores often advertise sale prices as a percent of regular prices. Percent means “parts per hundred.” So, 30 percent means the same thing as 30/100 or 0.30. Expressing change as a percentage allows you to analyze the relative size of the change. Learning the Skill Follow these steps to learn how to calculate and use percentages. Then answer the questions below. Suppose a pair of shoes is on sale for 30 percent off the regular price. Calculate the discount by multiplying the original price by the sale percentage. Change percent to a decimal before you multiply. 4. Calculate an increase in sales by subtracting the quantity sold last year from the quantity sold this year. 2. Find the sale price by subtracting the discount from the regular price. Calculating Percent Regular price of shoes 30% Discount $57.00 ×.30 $17.10 Regular price Discount Sale price $57.00 − 17.10 $39.90 $57.00 OR ×.70 $39.90 3. Or, figure the sale price by multiplying the regular price by the percent you will pay. (Subtract the sale percentage from 100 to get
the percent you will pay.) Change percent to a decimal before you multiply. Arithmetic Change vs. Percentage Change Arithmetic change 1.6 billion pounds of butter sold this year −1.5 billion pounds of butter sold last year.1 billion pounds Percentage change 0.1 =.067 × 100 = 6.7 percent 1.5 5. Determine the percentage change by dividing the arithmetic difference by the original quantity. Multiply by 100 to change the decimal to percent. Practicing the Skill 1. A store advertises a shirt at 25 percent off the original price of $44. What is the sale price? 2. What is the percentage increase in high school enrollment from 1,165 students to 1,320? Applying the Skill to Economics The total number of digital single music tracks downloaded online or to mobile phones rose to 470 million units in 2005, up from 160 million in 2004. What was the percentage change of single-track downloads from 2004 to 2005? R54 SKILLS HANDBOOK Economics Skills Determining Averages Why Learn This Skill? The most commonly used summary statistic is the average. There are two ways to compute the average: by using the mean or the median. The mean is the average of a series of items. When your teacher computes the class average, he or she is really computing the mean. Sometimes using the mean to interpret statistics is misleading, however. This is especially true if one or two numbers in the series are much higher or lower than the others. The median can be more accurate. The median is the midpoint in any series of numbers arranged in order. Learning the Skill Follow these steps to learn how to determine and use averages. 1. Suppose you want to find the mean weekly salary for a group of teenagers. First, add all the earnings together. 3. Locate the median by finding the midpoint in the series ($41). Compare the mean with the median. Determine which is the more useful statistic. Students’ Weekly Earnings From After-School Jobs $ 20 32 34 41 53 65 175 $ 420 $420 ÷ 7 = $60 2. Divide the sum by the number of students to find the mean. Median Weekly Income of the Four Highest-Paid Students $ 41 53 65 175 $ 53 + 65 $ 118 $118 ÷ 2 = $59 5. When an even number of figures is in the series, the median is the mean of the two middle numbers. Follow steps 1 and 2 to find the mean. 4
. Suppose you want to calculate the median for the four highest-paid students. First, arrange the numbers in order, from least to greatest Practicing the Skill 1. What is the mean salary for the four lowest-paid students? 2. What is the median salary for the four lowest-paid students? Applying the Skill to Economics Average Monthly Rent: 2005 Average Monthly Rent: 2005 $ 971 Dallas, TX $ 971 Dallas, TX Miami, FL Miami, FL Boston, MA $1,216 Boston, MA $1,216 $ 709 $ 709 Los Angeles, CA $1,330 Los Angeles, CA $1,330 1. What is the mean monthly rent for these four cities? 2. What is the median monthly rent? SKILLS HANDBOOK R55 Economics Skills Understanding Nominal and Real Values Why Learn This Skill? The rise in the economy’s average price level is called inflation. To make comparisons between the prices of things in the past and those of today, you have to make the distinction between nominal, or current, and real, or adjusted for inflation, values. You can use the consumer price index (CPI), an index of average prices for consumer goods, to calculate real values. Then you can accurately compare changes in income and prices over time. Learning the Skill Follow these steps to learn how to calculate nominal and approximate real values when price changes are small. 4. Determine the percentage increase in real price. Subtract the percentage increase in CPI from the percentage increase in nominal price. Evaluate the sales in real values. Purchase price of house in 1995: $75,000 Sale price of house in 2005: $150,000 $ 150,000 − 75,000 $ 75,000 $75,000 = 1 × 100 = 100% $75,000 200 −100 100 CPI in 1995: 100 CPI in 2005: 200 100 = 1 × 100 = 100% 100 100% −100% 0. Suppose a family sells a house after living there for 10 years. To calculate whether they made any profit from the sale, they need to know the real sale price of their house. First, find the nominal price increase. 2. Calculate the nominal percentage increase in price. Divide the amount of increase by the original price and multiply by 100 to express the answer as a percent. 3. Determine the percentage increase in the consumer price index. First find the actual change in CPI. Then divide the amount of increase by the original CPI and multiply
by 100. 5. Suppose that last year you earned $10 per hour. You receive a 5 percent raise. The CPI is 3 percent higher than last year’s CPI, which means there is a 3 percent inflation rate. Earnings: $10 per hour Raise: 5% Inflation Rate: 3% 5% − 3% 2% 6. Calculate the real salary increase by subtracting the inflation rate from the nominal raise. Practicing the Skill 1. What was the nominal price increase on the sale of the house? 2. How much money, in real dollars, was made on the house? 3. How much was the real value of the raise? Applying the Skill to Economics From 2004 to 2005, the cost of employer health insurance premiums increased by 9.2 percent—nearly three times the rate of inflation. Based on this information, what was the inflation rate that year? How could you adjust the cost of health insurance for inflation? R56 SKILLS HANDBOOK Economics Skills Understanding Interest Rates Why Learn This Skill? When you deposit money in a savings account, the bank pays you interest for the use of your money. The amount of interest is expressed as a percent, such as 6 percent, for a time period, such as per year. Two types of interest exist: simple and compound. Simple interest is figured only on the principal, or original deposit, not on any interest earned. Compound interest is paid on the principal plus any interest that has been earned. Learning the Skill Follow these steps to learn how to understand and calculate interest rates. 1. Suppose you deposit $100 in a savings account that earns 6 percent simple interest per year. Get ready to figure your earnings by converting 6 percent to a decimal. 2. To calculate the simple interest earned, multiply the principal by the interest rate. Simple Interest 6% =.06 $ 100 $ 100 ×.06 + 6 6 $ 6.00 $ 112 3. Calculate the account bal- ance for the first two years, assuming the bank pays the same interest rate each year. Add the principal, the first year’s interest, and the second year’s interest. Suppose you deposit $100 in a savings account that earns 6 percent compound interest per year. Calculate the interest earned the first year. 6. Determine the interest earned in the second year. Multiply the new balance by the interest rate. Compound Interest $ 100 ×.06 $ 6.00 $ 100 $ 106 + 6
×.06 $ 6.36 $ 106 $ 106.00 + 6.36 $112.36 5. Find the bank balance for the end of the first year. Add the principal and first year’s interest. 7. Figure the total bank balance after two years. Add the second year’s interest to the first year’s balance. Practicing the Skill 1. What would be the difference in earnings between simple and compound interest if your initial balance was $1,000 rather than $100? 2. What would be the difference in earnings between simple and compound interest on your $100 savings after five years? Applying the Skill to Economics 1. What would be the impact of compounding interest on a daily basis rather than an annual basis? 2. Banks often pay higher rates of interest on money you agree to keep in the bank for longer periods of time. Explain why this might be. SKILLS HANDBOOK R57 Economics Skills Interpreting Political Cartoons Why Learn This Skill? Political cartoonists use art to express opinions. Their work appears in newspapers, magazines, books, and on the Internet. Political cartoons usually focus on public figures, political events, or economic or social conditions. They can give you a summary of an event or circumstance and the artist’s opinion in a quick, entertaining manner. Learning the Skill To interpret a political cartoon, follow these steps: 1. Read the title, caption, or conversation balloons. They help you identify the subject of the cartoon. 3. Identify any symbols shown. Symbols are things that stand for something else. Commonly recognized symbols may not be labeled. Unusual symbolism will be labeled. 5. Identify the cartoonist’s purpose. What statement or idea is he or she trying to get across? Decide if the cartoonist wants to persuade, criticize, or just make people think. Identify the characters or people shown. They may be caricatures, or unrealistic drawings that exaggerate the characters’ physical features. 4. Examine the actions in the cartoon—what is happening and why? Practicing the Skill 1. What is “cow tipping”? What does this imply about the U.S. economy as it is pictured in the cartoon? 2. What does the rhinoceros represent? Why might the cartoonist have chosen this particular symbol? 3. What overall message do you think the cartoonist is trying to send? Applying the Skill to Economics Bring a newspaper
or business magazine to class. With a partner, analyze the message in each political cartoon that you find. R58 SKILLS HANDBOOK Scott Stantis/Copley News Service Economics Skills Reading Stock Market Reports Why Learn This Skill? A stock market report alphabetically lists stocks and provides information about stock prices and trades. Every business day, shares of stock are bought and sold. At the beginning of each trading day, stocks open at the same prices they closed at the day before. Prices generally go up and down throughout the day as the conditions of supply and demand change. At the end of the day, each stock’s closing price is recorded. Learning the Skill Follow these steps to learn how to understand and use the financial page. 1. Locate the stock in the alphabetical list. Names are abbreviated. 3. Note the ticker symbol, or computer code, for the stock. 5. Review the yield. The yield is the return on investment per share of stock. It is calculated by dividing the dividend by the closing price. 7. Note the volume, or number of shares of stock, traded that day. The number given represents hundreds of shares. 9. Examine how the day’s closing stock price compares with the prior business day’s closing price. Positive numbers indicate a price increase. Negative numbers mean a price drop Stock Quotations 52 Weeks Lo Hi Stock 86.40 47.87 AppleComp 475.11 27.49 290.69 Google 16.75 Intel Sym AAPL GOOG INTC Div 2.22 6.82 1.10 Yld % 2.9 1.7 5.5 PE 34.96 59.68 18.15 Vol 100s 391290 51928 939098 Hi 77.78 407.68 19.98 Lo 76.10 401.77 19.32 Close 77.74 406.99 19.96 Net Chg + 1.86 + 3.01 + 0.55 2. Examine the stock’s history over the last 52 weeks. The high and low prices for one share of stock appear. 4. Evaluate the annual dividend. Stockholders receive this dividend, or payment, for each share of stock they own. 6. Read the price/earnings ratio. Lower price/earnings ratios generally mean more earnings per share. 8. Examine the day’s high, low, and closing stock price. Practicing the Skill 1. How many shares of Google
stock were traded on the day shown? 2. What was the day’s highest price for a share of Apple Computer stock? 3. Which stock had the greatest increase in closing price from the previous day? Applying the Skill to Economics If you had purchased 100 shares of Intel stock at its lowest 52-week price and sold it at this day’s closing price, how much money would you have made? SKILLS HANDBOOK R59 Databank The data and forecasts for the graphs, tables, and charts in the Databank are based on information from Standard & Poor’s. The American People U.S. Population Projections............. R61 The Financial Sector Interest Rates......................... R70 Civilian Labor Force.................... R61 Consumer Credit Outstanding........... R70 Hours and Earnings in Private Industries.. R62 Personal Saving....................... R71 The U.S. Economy Gross Domestic Product................ R63 A Look at Market History (S&P 500)..... R63 Money Stock.......................... R71 The Global Economy Population............................ R72 Real Personal Consumption Gross National Income................. R72 Gross Domestic Product................ R72 World Population by Age............... R73 Countries Ranked by Population......... R73 Aging Index in Selected Nations of the Americas...................... R74 Median Age, World.....................
R74 U.S. Exports and Imports............... R75 Inflation and Unemployment, Selected Economies................ R75 Expenditures....................... R64 Personal Consumption Expenditures..... R64 Average Prices of Selected Goods....... R65 Annual Changes in Consumer Price Indexes........................... R66 Inflation in Consumer Prices............ R66 The Government Sector Federal Government Expenditures....... R67 Total Government Expenditures......... R67 Federal Government Total Receipts and Total Outlays.................. R68 Federal Debt Held by the Public......... R68 Federal Debt Held by the Public Per Capita......................... R68 Federal Budget Receipts................ R69 R60 DATABANK DATABANK R61 R62 DATABANK The U.S. Economy Gross Domestic Product, 1950–2005 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1950 1955 1960 1965 1970 1975 1985 1990 1995 2000 2005 2010 1980 Year Source: U.S. Department of Commerce, Bureau of Economic Analysis 1,600 1,200 800 400 0 A Look at Stock Market History U.S. launches air war against Iraq January 17, 1991 U.S. Allies launch war against Iraq March 20, 2003 Iraq invades Kuwait August 2, 1990 Iran hostage crisis November 4, 1979 Arab oil embargo October 5, 1973 President Kennedy assassinated November 22, 1963 Cuban Missile Crisis October 22, 1962 South Korea invaded June 25, 1950 Pearl Harbor bombed December 7, 1941 WTC/Pentagon terrorist attacks September 11, 2001 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Source: Standard & Poor’s Year DATABANK R
63 Personal Consumption Expenditures, 1960–2005 Food Clothing and shoes Gasoline and oil Fuel oil and coal 1970 1980 1990 2000 2010,400 1,200 1,000 800 600 400 200 1960 Source: Department of Commerce, Bureau of Economic Analysis Year R64 DATABANK DATABANK R65 R66 DATABANK The Government Sector Federal Government Expenditures, 1950–2010,500 3,000 2,500 2,000 1,500 1,000 500 0 1950 1960 1970 1980 1990 2000 2010* Year National Defense Non-Defense Source: The Federal Budget for Fiscal Year 2007, Historical Tables Estimate Total Government Expenditures, 1965–2005,000 2,500 2,000 1,500 1,000 500 0 1965 1975 1995 2005 1985 Year Federal Expenditures State and Local Expenditures Source: Economic Report of the President, 2006 DATABANK R67 The Government Sector Federal Government Total Receipts and Total Outlays, 1950–2007,000 2,500 2,000 1,500 1,000 500 0 1950 1960 1970 Source: Economic Report of the President, 2006 2006 and 2007 are estimates Outlays * * Receipts 1980 Year 1990 2000 2010 Federal Debt Held by the Public Per Capita, 1950–2007 r a e Y 2007* 2000 1990 1980 1970 1960 1950 0 2 4 6 8 In thousands of dollars 10 12 14 16 18 Source: Economic Report of the President, 2006 Estimate R68 DATABANK Employment Taxes CC 1,200 The Government Sector Federal Budget Receipts, 1990–2010 AA Federal Budget Receipts BB Individual Income Taxes,000 2,500 2,000 1,500 1,000 500 0 1,500 s r a l l o d 1,000 500 1990 2000 Year 2010 0 1990 2010* 2000 Year,000 800 600 400 200 0 DD Corporate Income Taxes 300 200 100 0 1990 2010* 2000 Year 90 60 30 0 EE Excise Taxes 1990 2010* 2000 Year C FF 120 100 80 60 40 20 1990 2010* 2000 Year Other Receipts 1990 2010* 2000 Year GG 9.1% 8.9% Percentage of Total Receipts HH 10.2% 7.9% 45.2% 49.6% 9.8% 6.5% II 47.6% Individual Income Taxes 36.8% 32.2% 1990 2000 Source: Federal Budget for FY 2007, Historical Tables *Estimates Employment Taxes Corporate Income Taxes Other Receipts 36.0% 2010
* DATABANK R69 Consumer Credit Outstanding, 1985–2005 Total Consumer Credit 1985 1995 2005 $599.7 billion $1,141.4 billion $2,147.9 billion 79.2% 61.1% 62.5% 20.8% 1985 38.9% 37.5% 1995 2005 Total Consumer Credit Nonrevolving (includes loans for vacations, education, automobiles, etc.) Revolving (includes credit card, check credit) Source: Board of Governors of the Federal Reserve System R70 DATABANK The Financial Sector Personal Saving, 1960–2006 1970 1980 1990 2000 2010 12 11 10 1 -2 1960 Source: U.S. Department of Commerce, Bureau of Economic Analysis Year Money Stock, 1975–2005 22.0% 19.9% 23.6% 17.0% 78.0% 80.1% 76.4% 83.0% 1975 M1 = $287.1 M2 = $1,016.2 1985 M1 = $619.8 M2 = $2,495.7 1995 M1 = $1,126.8 M2 = $3,640.6 2005 M1 = $1,368.7 M2 = $6,671.8 M1 consists of all currency and checkable deposits. In billions of dollars M2 consists of M1 plus noncheckable savings accounts, money market deposit accounts, time deposits, and money market mutual funds. Source: Board of Governors of the Federal Reserve System DATABANK R71 105 90 75 60 45 30 15 ) 35,000 30,000 25,000 20,000 15,000 10,000 5,000,500 3,000 2,500 2,000 1,500 1,000 500 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 t n e c r e P 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1. The Global Economy Population Low-income countries 54 countries Middle-income countries 98 countries High-income countries 56 countries Population Population Density i l Gross National Income Low-income countries 54 countries Middle-income countries 98 countries High-income countries 56 countries Gross National Income Gross National Income per Capita Gross Domestic Product Gross Domestic Product Low-income countries 54 countries Middle-income countries 98 countries High-income countries 56 countries Gross Domestic Product (Percent Growth) Gross Domestic Product per Capita
BABWE Windhoek BOTSWANA Gaborone Tshwane (Pretoria) TANZANIA M A L A W E U I M BIQ Z a m bez i A Z O M Maputo SWAZILAND O r ange SOUTH AFRICA Bloemfontein LESOTHO Cape Town Antananarivo MAURITIUS MADAGASCAR Reunion Fr South China Sea CAMBODIA Ho Chi Minh City BRUNEI MALAYS I A Colombo SRI LANKA Kuala Lumpur S E V I D L A M EQUATOR S u m a t r a Borneo SINGAPORE PALAU Mindanao FEDERATED STATES OF MICRONESIA MARSHALL ISLANDS I N D O N E S I A Celebes Jakarta Java Surabaya New Guinea PAPUA NEW GUINEA Port Moresby Arafura Sea EAST TIMOR (TIMOR-LESTE) Darwin KIRIBATI NAURU TUVALU SOLOMON ISLANDS Perth D M u Kerguelen Islands Fr. Melbourne Tasmania 60°S Brisbane a rli n g Sydney Canberra Tasman Sea r r a y NEW ZEALAND Wellington South Island C o r a l S e a VANUATU FIJI ISLANDS New Caledonia Fr. South Pacific Ocean North Island Auckland ABBREVIATIONS AUST................. AUSTRIA B.&H.................. BOSNIA & HERZEGOVINA BELG........................... BELGIUM CROAT............................... CROATIA CZECH REP................ CZECH REPUBLIC DEM. REP.......................... DEMOCRATIC OF THE REPUBLIC OF CONGO THE CONGO EQ. GUINEA........ EQUATORIAL GUINEA EST............................................ ESTONIA HUNG.................................... HUNGARY LITH....................................... LITHUANIA MACED.............................. MACEDONIA MOLD.................................... MOLDOVA NETH............................... NETHERLANDS SERB........................................ SERBIA MONT............................. MONTENEGRO SLOV....................................... SLOVENIA SWITZ.............................. SWITZERLAND U.A.E.............. UNITED ARAB
$5,600 BOLIVIA $2,600 BRAZIL $8,100 PARAGUAY $4,800 CHILE $10,700 URUGUAY $14,500 ARGENTINA $12,400 BELGIUM $30,600 AUSTRIA $31,300 SLOVENIA $19,600 FRANCE $28,700 SWITZERLAND $33,800 SPAIN $23,300 PORTUGAL $17,900 ITALY $27,700 MAURITANIA SENEGAL GAMBIA GUINEABISSAU CAPE VERDE GUINEA SIERRA LEONE MALTA $18,200 WORLD GROSS DOMESTIC PRODUCT PER CAPITA CARTOGRAM 8 POLAN $12,00 E U U SE $2 CR $ O MORO $4,20 T L A LIBERIA BURKIN U FAS I CÔ L D'IVO (IVO COA NIGE GHA TO BEN NIGE CANADA $31,500 UNITED STATES $40,100 MEXICO $9,600 CUBA $3,000 GUATEMALA $4,200 BELIZE $6,500 EL SALVADOR $4,900 HONDURAS $2,800 JAMAICA $4,100 NICARAGUA $2,300 COSTA RICA $9,600 PANAMA $6,900 GROSS DOMESTIC PRODUCT (GDP) North America South America Europe Africa Asia Australia & Oceania Each square represents $100 of per capita GDP. CIA, The World Factbook, 2006; World Bank, World Development Indicators, 2005. Not all countries shown R86 REFERENCE ATLAS 9 10 11 12 13 14 15 16 Y 0 SWEDEN $28,400 MANY 8,700 N 0 ECH UBLIC,800 USTRIA 31,300 E 2 R OVENIA 9,600 O 0 TANIA L A N UINEA S IERRA Ô LEONE O O E A O N ESTONIA $14,300 POLAND $12,000 FINLAND $29,000 LATVIA $11,500 LITHUANIA $12,500 BELARUS $6,800 UKRAINE $6,300 SLOVAKIA $14,500 MOLDOVA ROMANIA $7,700 HUNGARY $14,900
SERBIA $2,200 MONTENEGRO $2,200 CROATIA $11,200 BULGARIA $8,200 MACEDONIA TURKEY $7,400 SYRIA $3,400 LEBANON $5,000 GREECE $21,300 IRAN $7,700 IRAQ $2,100 KUWAIT $21,300 ALBANIA BOSNIA & HERZEGOVINA $6,500 ISRAEL ($20.8) JORDAN MOROCCO $4,200 TUNISIA $7,100 ALGERIA $6,600 MALI CHAD LIBYA $6,700 EGYPT $4,200 SUDAN $1,900 SAUDI ARABIA $12,000 DJIBOUTI ERITREA ETHIOPIA SOMALIA KENYA BURUNDI TANZANIA ZAMBIA MALAWI $600 ZIMBABWE MOZAMBIQUE MAURITIUS $12,800 UGANDA RWANDA GABON $5,900 ANGOLA JAPAN $29,400 TAIWAN $25,300 KYRGYZSTAN TAJIKISTAN AFGHANISTAN KAZAKHSTAN $7,800 RUSSIA $9,800 GEORGIA AZERBAIJAN UZBEKISTAN ARMENIA TURKMENISTAN $5,700 INDIA $3,100 NORTH KOREA $1,700 SOUTH KOREA $19,200 MONGOLIA BHUTAN MYANMAR (BURMA) CHINA $5,600 NEPAL LAOS VIETNAM BANGLADESH $2,000 SRI LANKA CAMBODIA PAKISTAN $2,200 QATAR $23,200 THAILAND $8,100 MALAYSIA $9,700 PHILIPPINES $5,000 UNITED ARAB EMIRATES $25,200 SINGAPORE $27,800 OMAN $13,100 YEMEN $800 BRUNEI $23,600 KIRIBATI $800 INDONESIA $3,500 PAPUA NEW GUINEA SOLOMON ISLANDS EAST TIMOR (TIMOR-LESTE
) $400 NEW ZEALAND $23,200 FIJI ISLANDS $5,900 AMERICAN SAMOA (U.S.) $8,000 TONGA BOTSWANA $9,200 NAMIBIA $7,300 SWAZILAND $5,100 AUSTRALIA $30,700 MADAGASCAR $800 SOUTH AFRICA $11,100 LESOTHO DEM. REP. OF THE CONGO CONGO EQUATORIAL GUINEA SAO TOME AND PRINCIPE CENTRAL AFRICAN REPUBLIC CAMEROON LIBERIA BURKINA FASO CÔTE D'IVOIRE (IVORY COAST) NIGER GHANA TOGO BENIN NIGERIA 10 11 12 13 14 15 16 REFERENCE ATLAS R87 1 2 3 4 5 6 7 8 ICELAND IRELAND SWEDEN FINLAND NORWAY DENMARK ESTONIA LATVIA LITHUANIA RUSSIA 143,000,000 BELARUS AZERBAIJAN UNITED KINGDOM 60,000,000 NETHERLANDS BELGIUM FRANCE 60,000,000 GERMANY 82,000,000 POLAND GEORGIA SLOVAKIA UKRAINE 47,000,000 LUX. AUSTRIA CZECH REP. HUNGARY MOLDOVA ARMENIA ROMANIA SWITZERLAND SLOVENIA CROATIA BOSNIA & HERZEGOVINA BULGARIA TURKEY 73,000,000 MONTENEGRO MACEDONIA SERBIA GREECE ALBANIA PORTUGAL SPAIN BURKINA FASO I 0 A R OR E 0 KAZA D UZB N AF T 3 IRAN 70,000,0 N BERMUDA (U.K.) DOMINICAN REPUBLIC CUBA JAMAICA HAITI HONDURAS GUYANA VENEZUELA COLOMBIA PUERTO RICO (U.S.) CAPE VERDE TRINIDAD & TOBAGO MAURITANIA GAMBIA GUINEABISSAU MOROCCO ALGERIA MALI LIBYA TUNISIA GHANA NIGER CHAD SENEGAL GUINEA NIGERIA 132,000,000 ITAL
Y 59,000,000 CYPRUS LEBANON JORDAN ISRAEL SYRIA YR IRAQ K EGYPT 74,000,000 SAUDI ARABIA QATA A U.A.E. OMAN YEMEN ERITREA SUDAN ETHIOPIA 77,000,000 UGANDA KENYA SOMA N CANADA UNITED STATES 296,000,000 MEXICO 107,000,000 GUATEMALA EL SALVADOR NICARAGUA COSTA RICA PANAMA CAMEROON BENIN TOGO COTE D'IVOIRE GABON CONGO CENTRAL AFRICAN REPUBLIC RWANDA DEM. REP. OF THE CONGO ANGOLA ZAMBIA TANZANIA BURUNDI MALAWI MOZAMBIQUE NAMIBIA BOTSWANA ZIMBABWE SOUTH AFRICA LESOTHO SWAZILAND MADAGASCAR O A 0 D B D S ECUADOR PERU BOLIVIA PARAGUAY BRAZIL 184,000,000 SIERRA LEONE LIBERIA CHILE ARGENTINA URUGUAY WORLD POPULATION CARTOGRAM R88 REFERENCE ATLAS 9 10 11 12 13 14 15 16 IA 000 ARUS RBAIJAN ORGIA E 0 A DOVA B NIA F TURKEY 3,000,000 NIA N 0 MONGOLIA NORTH KOREA SOUTH KOREA KAZAKHSTAN UZBEKISTAN KYRGYZSTAN TAJIKISTAN TURKMENISTAN CHINA 1,304,000,000 AFGHANISTAN IRAN 70,000,000 NEPAL JAPAN 128,000,000 YRIA IRAQ PAKISTAN 162,000,000 K KUWAIT SAUDI ARABIA OMAN YEMEN TREA A 0 A NYA IA DI BIQUE D SCAR BAHRAIN QATAR U.A.E. INDIA 1,104,000,000 SOMALIA BANGLADESH 144,000,000 VIETNAM 83,000,000 MYANMAR (BURMA) LAOS THAILAND 66,000,000 CAMBODIA TAIWAN PHILIPPINES
. 46) acomodar: dar cabida (p. 46) accumulation: gradual collection of goods (p. 14) acumulación: colección gradual de bienes (p. 14) acid rain: pollution in form of rainwater mixed with sulfur lluvia ácida: contaminación en la forma de agualluvia mez- dioxide to form a mild form of sulfuric acid (p. 516) clada con dióxido de sulfuro que constituye una forma leve de ácido sulfúrico (p. 516) adequate: just enough to satisfy a requirement (p. 108) adecuado: lo suficiente para satisfacer una exigencia (p. 108) adverse: unfavorable or harmful (p. 45) adverso: desfavorable o nocivo (p. 45) advocates: supports; speaks in favor of (p. 433) *defensores: personas que dan apoyo; hablan en favor de (p. 433) agency shop: arrangement under which non-union members must pay union dues (p. 204) taller gremial: arreglo por el cual aquellos que no son miembros del sindicato tienen que pagar cuotas al mismo (p. 204) aggregate demand: the total value of all goods and services demanda agregada: cantidad total de bienes y servicios demanded at different price levels. (p. 415) demandados a varios precios (p. 415) aggregate demand curve: hypothetical curve showing dif- ferent levels of real GDP that would be purchased at various price levels (p. 415) curva de demanda agregada: curva hipotética que muestra distintos niveles del PIB real que se podrían producir a distintos niveles de precio (p. 415) aggregate supply: the total value of all goods and services that all firms would produce in a specific period of time at various price levels (p. 414) oferta agregada: valor total de bienes y servicios que todas las empresas producirán durante un período específ
por periodos alternantes de expansión y contracción (p. 353) business fluctuation: changes in real GDP marked by alter- fluctuación comercial: cambios en el PIB acentuados por nating periods of expansion and contraction that occur on an irregular basis (p. 353) períodos alternantes de expansión y contracción que ocurren irregularmente (p. 353) C call option: futures contract giving investors the option to cancel a contract to buy commodities, equities, or financial assets (p. 311) opción de compra: contrato de futuros que da a los inversionistas la opción de cancelar un contrato para comprar productos básicos, acciones, o activos financieros (p. 311) capital: tools, equipment, and factories used in the production of goods and services; one of four factors of production (p. 8) capital: implementos, equipo y fábricas que se usan en la producción de bienes y servicios; uno de cuatro factores de producción (p. 8) capital flight: legal or illegal export of a nation’s currency and fuga de capitales: exportación legal o ilegal de la moneda y foreign exchange (p. 477) las divisas de una nación (p. 477) capital gains: profits from the sale of an asset held for 12 ganancias de capital: ganancias de la venta de un activo months or longer (p. 250) después de haberlo tenido durante 12 meses o más tiempo (p. 250) capital good: tool, equipment, or other manufactured good used to produce other goods and services; a factor of production (p. 8) bienes de capital: implemento, equipo u otros bienes fabricados que se emplean para producir otros bienes y servicios; un factor de producción (p. 8) capital-intensive: production method requiring relatively large amounts of capital relative to labor (p. 492) capital intensivo: método de producción que requiere relativamente grandes cantidades de capital con relación a la mano de obra (p
residence (p. 329) residencia (p. 329) center of population: point where the country would balance centro de población: punto donde el país se equilibraría si if it were flat and everyone weighed the same (p. 331) fuera plano y todo el mundo pesara lo mismo (p. 331) central bank: bank that can lend to other banks in times of banco central: banco que le presta a otros bancos en momen- need, a “bankers’ bank” (p. 394) tos de necesidad, el “banco de los banqueros” (p. 394) certificate of deposit: receipt showing that an investor has made an interest-bearing loan to a financial institution (p. 290) certificado de depósito: recibo que indica que un inversionista ha hecho un préstamo con intereses a una institución financiera (p. 290) chamber of commerce: nonprofit organization of local businesses whose purpose is to promote their interests (p. 81) cámara de comercio: organización sin fines de lucro cuyo propósito es promover los intereses comunes de los negocios locales (p. 81) change in demand: consumers demand different amounts at every price, causing the demand curve to shift to the left or the right (p. 99) cambio en demanda: los consumidores demandan distintas cantidades en cada precio, haciendo que la curva de demanda cambie hacia la izquierda o la derecha (p. 99) change in quantity demanded: movement along the demand cambio en la cantidad demandada: un movimiento en la curve showing that a different quantity is purchased in response to a change in price (p. 98) curva de relación entre demanda y precio que demuestra que se está comprando una cantidad distinta debido a un cambio de precio (p. 98) change in quantity supplied: change in amount offered for sale in response to a price change; movement along the supply curve (p. 119) cambio en la cantidad suplida: cambio
en la cantidad que se ofrece a la venta en respuesta a un cambio de precio; movimiento a lo largo de la curva de abastecimiento (p. 119) change in supply: different amounts offered for sale at each and every possible price in the market; shift of the supply curve (p. 120) cambio en abastecimiento: distintas cantidades ofrecidas a la venta a todos los precios posibles del mercado; cambio en la curva de abastecimiento (p. 120) charter: written government approval to establish a corporation; includes company name, address, purpose of business, number of shares of stock, and other features of the business (p. 67) carta constitucional: aprobación escrita del gobierno para establecer una corporación; incluye el nombre de la compañía, la dirección, propósito del negocio, número de acciones y otros aspectos del negocio (p. 67) civilian labor force: noninstitutionalized part of the popu- lation, aged 16 and over, either working or looking for a job (pp. 204, 370) fuerza de trabajo civil: parte de la población no institucionalizada, entre los 16 y 65 años, que está trabajando o buscando trabajo (pp. 204, 370) R94 GLOSSARY/GLOSARIO Glossary/Glosario closed shop • complements En gli sh E sp añol closed shop: arrangement under which workers must join a pacto de pertenencia: acuerdo por el cual los trabajadores union before they are hired; usually illegal (p. 203) deben afiliarse al sindicato antes de ser contratados; generalmente es ilegal (p. 203) coins: metallic forms of money such as pennies, nickels, monedas: formas metálicas de dinero tal como el centavo, las dimes, and quarters (p. 406) monedas de cinco, diez y de 25 centavos (p.
406) coincide: to happen or exist at the same time or in the same coincidir: ocurrir o existir al mismo tiempo o en la misma position (p. 268) posición (p. 268) collective bargaining: process of negotiation between union and management representatives over pay, benefits, and jobrelated matters (pp. 81, 211) negociación colectiva: proceso de negociación entre el sindicato y los representantes administrativos acerca de pago, beneficios y asuntos relacionados al trabajo (pp. 81, 211) collectivization: forced common ownership of factors of production; used in the former Soviet Union in agri culture and manufacturing (p. 490) colectivización: propiedad común forzada de los factores de producción; se usó en la antigua Unión Soviética en la agricultura y en la industria manufacturera (p. 490) collude: to act together in secret, especially with harmful or coludir: confabularse y operar en secreto con alguien, espe- illegal intent (p. 180) cialmente con intención de daño o ilegal (p. 180) collusion: agreements, usually illegal, among producers to fix prices, limit output, or divide markets (p. 174) colusión: acuerdos, por lo general ilegales, entre los productores para fijar los precios, limitar la producción o dividir los mercados (p. 174) command economy: economic system characterized by a central authority that makes most of the major economic decisions (p. 35) economía de mando: sistema económico que se caracteriza por una autoridad central que toma la mayoría de las decisiones económicas (p. 35) commodity money: money that has an alternative use as an dinero como producto: dinero que tiene un uso alternativo economic good; gunpowder, flour, corn (p. 384) como un bien económico; pólvora, harina, maíz (p. 384) common stock: most common form of corporate ownership
, with one vote per share for stockholders (p. 67) acciones ordinarias: la forma más común de propiedad corporativa, con un voto por acción para los accionistas (p. 67) communism: economic and political system in which fac- tors of production are collectively owned and directed by the state; theoretically classless society in which every one works for the common good (p. 39) comunismo: sistema económico y político en el cual los factores de producción son de propiedad colectiva y dirigidos por el estado; teóricamente, una sociedad sin clases en que todos trabajan para el bien común (p. 39) company union: union organized, supported, or run by an sindicato de empresa: unión organizada, sostenida o dirigida employer (p. 199) por el patrón (p. 199) comparative advantage: country’s ability to produce a given product relatively more efficiently than another country; production at a lower opportunity cost (pp. 444, 504) ventaja comparativa: habilidad del país de producir un cierto producto con relativamente más eficiencia que otro país; la oportunidad de producción al costo más bajo (pp. 444, 504) compensation: something, such as money, given or received as an equivalent for goods or services, injury, debt, or high risk (p. 294) compensación: algo, por ejemplo dinero, que se da o recibe como equivalente de bienes o servicios, lesiones, deuda o alto riesgo (p. 294) competition: the struggle among sellers to attract consumers competencia: la lucha entre vendedores para atraer consumi- (p. 50) dores (p. 50) complements: products that increase the use of other products; products related in such a way that an increase in the price of one reduces the demand for both (p. 101) complementos: productos que aumentan el uso de otros productos; productos relacionados de tal mod
o que el aumento del precio de uno reduce la demanda de ambos (p. 101) GLOSSARY/GLOSARIO R95 Glossary/Glosario components • controversial En gli sh E sp añol components: parts of something (p. 325) componente: una parte de algo (p. 325) composite index of leading economic indicators (LEI): composite index of 10 economic series that move up and down in advance of changes in the overall economy; used to predict turning points in the business cycle (p. 359) índice compuesto de los principales indicadores econó- micos: índice compuesto de 10 series económicas que suben y bajan anticipando los cambios en la economía global; usados para predecir puntos de transición en el ciclo comercial (p. 359) compounded: increased, made worse (p. 509) compuesto: incrementado, empeorado (p. 509) comprehensive: covering many or all areas (p. 10) abarcativo: que cubre muchas o todas las áreas (p. 10) comprise: to be composed of (p. 62) abarcar: englobar, estar compuesto de (p. 62) concept: general idea (p. 251) concepto: idea general (p. 251) conducted: handled by way of (p. 135) conducido: que se maneja de cierta forma (p. 135) confined: kept within (p. 370) confinado: mantenido dentro de límites (p. 370) conglomerate: firm with four or more businesses making unrelated products, with no single business responsible for a majority of its sales (p. 76) conglomerado de empresas: firma con cuatro o más negocios que hacen productos no relacionados, sin ningún negocio en particular que sea responsable de la mayoría de sus ventas (p. 76) considerably: to a noticeable or significant extent (p. 243) considerablemente: en un grado significat
ivo o visible (p. 243) constant dollars: dollar amounts or prices that have been adjusted for inflation; same as real dollars (p. 221) dólares constantes: las cantidades o precios al que se ajusta el dólar debido a la inflación; igual que dólares reales (p. 221) constituents: persons who are represented by an elected constituyentes: personas representadas por un funcionario official (p. 261) oficial elegido (p. 261) construction: creation by assembling individual parts (p. 362) construcción: creación a través del montaje de partes indivi- duales (p. 362) consumer good: good intended for final use by consumers bienes del consumidor: bienes cuyo fin está dirigido a los rather than businesses (p. 13) consumidores en vez del comercio (p. 13) consumer price index (CPI): index used to measure price changes for a market basket of frequently used consumer items (p. 362) índice de precios de consumidor (CPI, siglas en inglés): índice que se usa para medir los cambios de precio de la cesta de compra de los productos que el consumidor usa con más frecuencia (p. 362) consumer sovereignty: role of consumer as ruler of the soberanía del consumidor: papel del consumidor como market when determining the types of goods and services produced (p. 51) soberano del mercado a la hora de determinar los tipos de bienes y servicios que se producen (p. 51) context: the circumstances surrounding a situation or event contexto: las circunstancias que rodean una situación o acon- (p. 504) tecimiento (p. 504) contributes: gives time, money, or effort (p. 130) contribuye: que aporta tiempo, dinero o esfuerzo (p. 130) controversial: disputed (p. 252) controversial: polémico (p. 252) R96 GLOSS
ARY/GLOSARIO Glossary/Glosario converted • crude birthrate En gli sh E sp añol converted: changed into a different form (p. 387) convirtido: que ha cambió a una forma diferente (p. 387) cooperative or co-op: nonprofit association performing some kind of economic activity for the benefit of its members (p. 80) cooperativa: asociación sin fines de lucro que lleva a cabo un tipo de actividad económica para el beneficio de sus miembros; incluye las cooperativas del consumidor, de servicios y de productores (p. 80) corporate income tax: tax on corporate profits (p. 240) impuesto sobre la renta de corporación: impuesto que pagan las corporaciones sobre sus ganancias (p. 240) corporation: form of business organization recognized by law as a separate legal entity with all the rights and responsibilities of an individual, including the right to buy and sell property, enter into legal contracts, sue and be sued (p. 67) corporación: una forma de organización comercial reconocida por la ley como una entidad legal independiente con todos los derechos y responsabilidades de individuo, inclusive el derecho de comprar y vender propiedad, entrar en contratos legales, demandar y ser demandada (p. 67) cost-benefit analysis: way of thinking that compares the cost análisis de costo-beneficio: forma de pensar que compara el of an action to its benefits (pp. 24, 522) costo de una acción con sus ventajas (pp. 24, 522) cost-push inflation: explanation that rising input costs, especially energy and organized labor, drive up the cost of products for manufacturers and cause inflation (p. 365) inflación de costos: explicación que expone que el aumento de costos de producción, especialmente energía y mano de obra organizada, aumentan el costo de los productos para el fabricante y causan inflación (p. 365) Council of Economic Advisers: three
(p. 373) oscilaciones en el ciclo económico (p. 373) D debtor: person who borrows money (p. 367) deudor: persona que pide dinero prestado (p. 367) default: the act of not repaying borrowed money (p. 476) incumplimiento: acto de no pagar dinero prestado. (p. 476) deficiency payment: cash payment making up the difference between the market price and the target price of an agricultural crop (p. 159) aportación para enjugar un déficit: aportación en efectivo para alcanzar la diferencia entre el precio del mercado y el precio indicativo de una cosecha agrícola (p. 159) deficit spending: annual government spending in excess of gastos deficitarios: gastos anuales del gobierno en exceso de taxes and other revenues (p. 278) los impuestos y otros ingresos (p. 278) deflation: decrease in the general level of the prices of goods deflación: disminución en el nivel general de los precios and services (p. 361) (p. 361) demand: combination of desire, ability, and willingness to buy demanda: combinación de deseo, habilidad y voluntad de a product (p. 91) comprar un producto (p. 91) demand curve: graph showing the quantity demanded at curva de demanda: gráfica que ilustra la cantidad que se each and every possible price that might prevail in the market at a given time (p. 93) demanda a cada precio que puede prevalecer en el mercado en cualquier momento dado (p. 93) demand deposit account (DDA): account whose funds can be removed by writing a check and without having to gain prior approval from the depository institution (p. 388) cuentas de depósito a la vista (CDV): cuentas cuyos fondos pueden retirarse al librarse un cheque y sin previa aprobación de la institución depositaria (p. 388) demand elasticity: a measure of responsiveness that shows how
a change in quantity demanded (dependent variable) responds to a change in price (independent variable) (p. 104) elasticidad de demanda: medida de responsividad que indica cómo el cambio en la cantidad demandada (variable dependiente) responde a un cambio en precio (variable independiente) (p. 104) R98 GLOSSARY/GLOSARIO Glossary/Glosario demand-pull inflation • discretionary spending En gli sh E sp añol demand-pull inflation: explanation that prices rise because all sectors of the economy try to buy more goods and services than the economy can produce (p. 365) inflación de demanda: explicación que expone que los precios aumentan porque todos los sectores de la economía tratan de comprar más bienes y servicios que lo que puede producir la economía (p. 365) demand schedule: listing showing the quantity demanded at all possible prices that might prevail in the market at a given time (p. 92) programa de demanda: lista que indica la cantidad demandada a todos los precios posibles que pueden prevalecer en el mercado en cualquier momento dado (p. 92) demographer: person who studies growth, density, and other demógrafo: persona que estudia el crecimiento, la densidad y characteristics of the population (p. 334) otras características de la población (p. 334) dependency ratio: ratio of children and elderly per 100 persons who are in the 18–64 working age bracket (p. 333) relación de dependencia: relación de niños a población que envejece por 100 personas dentro de la categoría de trabajo de las edades entre los 18-64 años (p. 333) depreciation: gradual wear on capital goods (p. 73) depreciación: desgaste gradual de los bienes de capital (p. 73) depression: state of the economy with large numbers of unemployed, declining real incomes, overcapacity in manufacturing plants, general economic hardship (p. 354) depresión: estado de la economía con grandes números de desemple
ados, disminución de ingresos reales, exceso de capacidad en las plantas manufactureras, dificultades económicas generales (p. 354) depression scrip: currency issued by towns, chambers of commerce, and other civic bodies during the Great Depression of the 1930s (p. 356) vale de depresión: moneda emitida por los pueblos, las cámaras de comercio y otras entidades cívicas durante la Gran Depresión de los años 30 (p. 356) deregulation: relaxation or removal of government regulations on business activities (p. 424) eliminación de restricciones: relajamiento o eliminación de los reglamentos del gobierno sobre las actividades comerciales (p. 424) developing country: country with relatively low average per capita income and less developed infrastructure, education, and health care system (p. 469) país en desarrollo: país con promedio de ingresos per cápita relativamente bajo, e infraestructura, educación, y sistema de salud menos desarrollados (p. 469) devoting: giving time or attention (p. 80) ferviente: que brinda tiempo o atención (p. 80) diminishing marginal utility: decrease in satisfaction or usefulness as additional units of a product are acquired (p. 95) utilidad marginal decreciente: descenso en la satisfacción o utilidad a medida que se van adquiriendo unidades adicionales de un producto (p. 95) diminishing returns: stage of production where output increases at a decreasing rate as more units of variable input are added (p. 130) rendimientos decrecientes: etapa de producción en la que el rendimiento aumenta a un ritmo disminuyente a medida que se añaden más unidades de insumo variable (p. 130) discomfort index: unofficial statistic that is the sum of monthly inflation and the unemployment rate; same as misery index (p. 374) índice de incomodidad: estadística no oficial de la suma de la
icas para llevarse a cabo por distintos trabajadores; igual que especialización (pp. 17, 504) dominant: possessing the most influence and control (p. 75) dominante: que tiene la máxima influencia y control (p. 75) double taxation: feature of taxation that allows stockholders’ dividends to be taxed both as corporate profit and as personal income (p. 69) doble impuesto: característica de impuestos que permite que los dividendos de los accionistas sean gravados como utilidades de la corporación tanto como ganancias personales (p. 69) Dow-Jones Industrial Average (DJIA): statistical series of 30 representative stocks used to monitor price changes (p. 310) Dow-Jones Industrial Average (DJIA): serie de estadísticas representativas de 30 acciones que se usan para seguir los cambios de precio (p. 310) durable good: a good that lasts for at least three years when bien duradero: artículo que dura por lo menos tres años al used regularly (p. 13) usarse con regularidad (p. 13) duration: length of time (p. 481) duración: cantidad de tiempo (p. 481) E Earned Income Tax Credit (EITC): federal tax credits and cash payments for low-income workers (p. 343) Crédito Fiscal por Ingresos: créditos impositivos federales y pagos en efectivo para los trabajadores de bajos ingresos (p. 343) easy money policy: monetary policy resulting in lower interest rates and greater access to credit; associated with an expansion of the money supply (p. 402) política de dinero abundante: política monetaria que resulta en tasas de interés más bajas y mayor acceso a crédito; se asocia con la expansión del abastecimiento de dinero (p. 402) e-commerce: electronic business or exchange conducted over comercio electrónico: negocio o intercambio electrónico the Internet (
p. 135) conducido por medio de Internet (p. 135) econometric model: macroeconomic expression used to describe how the economy is expected to perform in the future (p. 359) modelo econométrico: expresión macroeconómica usada para describir cómo se espera que se comporte la economía en el futuro (p. 359) economic growth: increase in a nation’s total output of goods crecimiento económico: aumento en la producción total de and services over time (p. 16) bienes y servicios de un país a través del tiempo (p. 16) economic interdependence: mutual dependence of one person’s, firm’s, or region’s economic activities on another (p. 17) interdependencia económica: dependencia mutua de las actividades económicas de personas, compañías o regiones entre sí (p. 17) R100 GLOSSARY/GLOSARIO Glossary/Glosario economic model • equilibrium wage rate En gli sh E sp añol economic model: simplified version of a complex concept modelo económico: versión simplificada de un concepto o or behavior expressed in the form of an equation, graph, or illustration (pp. 23, 149) comportamiento complejo expresado en forma de ecuación, gráfica o ilustración (pp. 23, 149) economic system: organized way a society provides for the wants and needs of its people (p. 33) sistema económico: manera organizada de una sociedad para proveer las necesidades de sus integrantes (p. 33) economics: social science dealing with the study of how economía: ciencia social que estudia cómo la gente satisface people satisfy seemingly unlimited and competing wants with the careful use of scarce resources (p. 6) los deseos, aparentemente ilimitados y competitivos, mediante el uso cuidadoso de escasos recursos (p. 6) economies of scale: increasingly efficient use of personnel, plant, and equipment
as a firm becomes larger (p. 176) economías de escala: aumento de la eficacia del uso del personal, la planta y el equipo a medida que la empresa aumenta de tamaño (p. 176) Efficient Market Hypothesis (EMH): argument that stocks are always priced about right, and that bargains are hard to find because they are closely watched by so many investors (p. 307) Hipótesis de Mercado Eficiente (HME): argumento acerca de que las acciones siempre tienen el precio adecuado, y que las rebajas son difíciles de hallar porque muchísimos inversionistas siempre las están vigilando (p. 307) elastic: type of elasticity where the percentage change in the independent variable (usually price) causes a more than proportionate change in the dependent variable (usually quantity demanded or supplied) (p. 104) elástico: tipo de elasticidad en que el cambio de porcentaje en la variable independiente (generalmente el precio) causa un cambio más que proporcionado en la variable dependiente (generalmente la cantidad demandada u ofrecida) (p. 104) elasticity: a measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price (p. 103) elasticidad: medida que nos dice cómo una variable dependiente, tal como cantidad, responde a un cambio en una variable independiente, tal como precio (p. 103) emphasizing: stressing (p. 36) enfatizante: que pone énfasis (p. 36) enabled: made possible (p. 444) habilitado: hecho posible (p. 444) enterprise zone: area free of local, state, and federal tax laws zona franca: área libre de impuestos locales, estatales y fede- as well as other operating restrictions (p. 344) rales y de restricciones operativas (p. 344) entity: unit or being (p. 63) entidad: unidad
ica: principios morales; normas de conducta que general- conduct (p. 480) mente se reconocen (p. 480) euro: single currency of European Union (p. 484) euro: moneda única de la Unión Europea (p. 484) European Coal and Steel Community (ECSC): group of six European countries formed in 1951 to coordinate iron and steel production to ensure peace among member countries; eventually evolved into the EU (p. 505) Comunidad Europea del Carbón y del Acero (CECA): grupo de seis países europeos formado en 1951 para coordinar la producción del hierro y el acero y así asegurar la paz entre los países miembros; evolucionó para llegar a ser la UE (p. 505) European Union: successor of the European Coal and Steel Community established in 1993 by the Maastricht Treaty (p. 483) Unión Europea: la sucesora de la Comunidad Europea que estableció el Tratado de Maastricht en noviembre del 1993 (p. 483) evolved: developed gradually (p. 234) evolucionado: que se desarrolló gradualmente (p. 234) excess reserves: financial institution’s cash, currency, and reserves not needed for reserve requirements; potential source of new loans (p. 396) reservas excesivas: dinero efectivo, divisas y reservas de una institución financiera que no se necesitan por exigencias de la reserva; fuente potencial de nuevos préstamos (p. 396) excise tax: general revenue tax levied on the manufacture or sale of selected items (p. 240) impuesto sobre consumo: tributo sobre ingresos generales recaudado sobre la manufactura o venta de objetos selectos (p. 240) excluded: not counted or included (p. 321) excluido: que no se cuenta ni se incluye (p. 321) expansion: period of uninterrupted growth of real GDP; recov- expansión: período de crecimiento ininterrumpido del P
que hace préstamos directamente sumers and specializes in buying installment contracts from merchants who sell on credit (p. 292) a los consumidores y que se especializa en la compra de contratos a plazos de los comerciantes que venden a crédito (p. 292) financial asset: a stock or document that represents a claim on the income and property of the borrower; CDs, bonds, Treasury bills, mortgages (p. 290) activo financiero: un acción o otro documento que representa un derecho a los ingresos y la propiedad del prestatario; CD, bonos, letras del Tesoro, hipotecas (p. 290) financial intermediary: institution that channels savings to investors; banks, insurance companies, savings and loan associations, credit unions (p. 290) intermediario financiero: institución que canaliza los ahorros a los inversionistas; bancos, compañías de seguro, sociedades de ahorro y préstamo, cooperativas de crédito (p. 290) financial system: network of savers, investors, and financial institutions that work together to transfer savings to investment uses (p. 290) sistema financiero: red de ahorradores, inversionistas e instituciones financieras que colaboran para transferir los ahorros a usos de inversión (p. 290) fiscal policy: use of government spending and revenue collec- política fiscal: el uso de las medidas que usa el gobierno para tion measures to influence the economy (p. 420) gastos y recaudación de ingresos con el fin influenciar la economía (p. 420) fiscal year: 12-month financial planning period that may not coincide with the calendar year; October 1 to September 30 for the federal government (p. 268) año fiscal: periodo de 12 meses para la planificación financiera que no necesariamente coincide con el año civil; período comprendido entre el 1 de octubre y el 30 de septiembre para el gobierno federal (p. 268) Five-Year Plan: comprehensive, centralized economic plan used by the
Soviet Union and China to coordinate development of agriculture and industry (p. 489) Plan Quinquenal: plan económico centralizado y abarcante que usó la Unión Soviética y la China para coordinar el desarrollo de la agricultura y la industria (p. 489) GLOSSARY/GLOSARIO R103 Glossary/Glosario fixed costs • free trader En gli sh E sp añol fixed costs: costs of production that do not change when out- costo fijo: costo de producción que no cambia cuando cambia put changes (p. 133) la producción (p. 133) fixed exchange rates: system under which the value of cur- tasas de cambio fija: sistema bajo el cual se fijan los valores rencies are fixed in relation to one another; the exchange rate system in effect until 1971 (p. 457) de las divisas en relación al de las otras; sistema de cotización que estuvo en efecto hasta el 1971 (p. 457) fixed income: income that does not increase even though renta fija: ingreso que no aumenta aunque los precios suban prices go up (p. 45) (p. 45) flat tax: proportional tax on individual income after a specified threshold has been reached (p. 251) impuesto fijo: impuesto proporcional sobre el ingreso individual después de haber alcanzado el ingreso especificado (p. 251) flexible exchange rates: system that relies on supply and demand to determine the value of one currency in terms of another; exchange rate system in effect since 1971, same as floating exchange rate (p. 458) tasas de cambio flexible: sistema que depende de oferta y demanda para determinar el valor de una moneda en términos de otra; sistema de cotización en efecto desde el 1971, igual a tasa de cambio flotante (p. 458) floating exchange rates: see flexible exchange rate (p. 458) tasas de cambio flotante: ver flexible exchange
rates (p. 458) fluctuates: changes continually and irregularly (p. 153) fluctúa: que cambia continua e irregularmente (p. 153) food stamps: government-issued coupons that can be sellos para la compra de alimentos: cupones que emite el exchanged for food (p. 342) gobierno y que se canjean por alimentos (p. 342) foreign exchange: foreign currencies used by countries to divisas: moneda extranjera que usan los países para conducir conduct international trade (p. 457) comercio internacional (p. 457) foreign exchange rate: price of one country’s currency in cotización de divisas: precio de la moneda de un país en terms of another currency (p. 457) relación a la moneda de otro país (p. 457) 401(k) plan: a tax-deferred investment and savings plan that plan 401(k): plan de ahorros e impuestos diferidos que actúa acts as a personal pension fund for employees (p. 307) como una pensión personal para empleados. (p. 307) fractional reserve system: system requiring financial institutions to set aside a fraction of their deposits in the form of reserves (p. 396) sistema de reserva fraccionada: sistema que dicta que las instituciones financieras aparten una fracción de sus depósitos en forma de reservas (p. 396) framework: point of reference (p. 416) marco: punto de referencia (p. 416) free enterprise economy: market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention (p. 24) free-trade area: group of countries that have agreed to reduce trade barriers among themselves, but lack a common tariff barrier for nonmembers (p. 483) economía de libre empresa: economía de mercado en la que los comercios privados tienen la libertad de operar para obtener ganancias con intervención limitada del gobierno (p. 24) zona de comercio libre: grupo de países que
: transfer payment from one level of government donativo del gobierno: transferencia de pago desde un to another not involving compensation (p. 263) Great Depression: worst period of economic decline in U.S. history, lasting from approximately 1929 to 1939 (p. 201) nivel del gobierno a otro y que no incumbe compensación (p. 263) Gran depresión: el peor periodo de disminución económica en la historia de los Estados Unidos, duró aproximadamente desde 1929 hasta 1939 (p. 201) Great Leap Forward: China’s second five-year plan begun in 1958 that forced collectivization of agriculture and rapid industrialization (p. 490) Gran Salto Adelante: el segundo plan quinquenal de China que comenzó en 1958 y obligó a la colectivización de la agricultura y la rápida industrialización (p. 490) grievance procedure: provision in a contract outlining the way future disputes and grievance issues will be resolved (p. 211) procedimiento para la presentación de reclamaciones: estipulación en un contrato que define la forma en que se resolverán futuras disputas y conflictos (p. 211) gross domestic product (GDP): dollar value of all final producto interno bruto (PIB): valor en dólares de todos los goods, services, and structures produced within a country’s national borders during a one-year period (pp. 9, 320) gross national product (GNP): total dollar value of all final goods, services, and structures produced in one year with labor and property supplied by a country’s residents, regardless of where the production takes place; largest measure of a nation’s income (p. 324) productos, servicios y estructuras finales dentro de las fronteras nacionales de un país durante el periodo de un año (pp. 9, 320) producto nacional bruto (PNB): valor total en dólares de todos los productos, estructuras y servicios finales producidos en un año con la mano de obra y la prop
mercado que no all condi tions of perfect competition (p. 172) cumple con todas las condiciones de competencia perfecta (p. 172) implemented: put into effect (p. 242) implementado: puesto en funcionamiento (p. 242) implication: something suggested to be naturally understood implicancia: algo que se sugiere para que se comprenda (p. 307) naturalmente (p. 307) implicit GDP price deflator: index used to measure price changes in gross domestic product (p. 364) deflactor implícito del precio PIB: índice que se usa para medir los cambios de precio del Producto Interno Bruto (p. 364) imports: the goods and services that a nation buys from other importaciones: bienes y servicios que una nación compra de nations (p. 442) otras naciones (p. 442) imposed: established; applied (p. 448) impuesto: establecido; aplicado (p. 448) incapacitated: lacking the ability to function normally (p. 523) incapacitado: carente de habilidad para funcionar normalmente (p. 523) incentive: something that motivates (p. 50) incentivo: algo que motiva (p. 50) incidence of a tax: final burden of a tax (p. 231) incidencia de un impuesto: carga final de un impuesto (p. 231) income effect: that portion of a change in quantity demanded caused by a change in a consumer’s real income when the price of a product changes (p. 98) efecto de ingreso: aquella porción de un cambio en cantidad demandada causada por un cambio en el ingreso real de un consumidor cuando el precio de un producto cambia (p. 98) income statement: report showing a business’s sales, expenses, and profits for a certain period, usually three months or a year (p. 73) declaración de ingreso: informe que muestra las vent
proporcionado en la variable dependiente (usualmente la cantidad demandada u ofrecida) (p. 104) infant industries argument: argument that new and emerging industries should be protected from foreign competition until they are strong enough to compete (p. 450) argumento de las industrias nacientes: argumenta de que a las industrias nuevas que están surgiendo se les debe proteger de la competencia extranjera hasta que estén lo suficiente fuertes para competir (p. 450) inflation: rise in the general level of prices (pp. 45, 361) inflación: aumento en el nivel general de los precios (pp. 45, 361) infrastructure: the highways, mass transit, communications, power, water, sewerage and other public goods needed to support a population (p. 332) infraestructura: las carreteras, tránsito público, comunicaciones, electricidad, agua, alcantarillado y otros servicios públicos necesarios para apoyar a una población (p. 332) initially: originally; at the beginning (p. 395) inicialmente: originalmente; al comienzo de (p. 395) injunction: court order issued to prevent a company or union mandato judicial: orden de la corte dictada para evitar que from taking action during a labor dispute (p. 212) una compañía o: sindicato tome acción durante una disputa laboral (p. 212) innovation: the creation of something new or different (p. 355) innovación: la creación de algo nuevo o diferente (p. 355) instituted: put into action (p. 282) instituido: establecido, fundado (p. 282) interaction: action of one on the actions of another (p. 120) interacción: acción de uno en las acciones de otro (p. 120) interest: payment made for the use of borrowed money; usually paid at periodic intervals for long-term bonds or loans (p. 69) interés: p
Keynes para estimular la economía; sinónimo de las políticas fiscales o de la economía del lado de la demanda (p. 420) L labor: people with all their abilities and efforts; one of four factors of production, does not include the entrepre neur (p. 8) trabajo: la gente con todas sus habilidades y esfuerzos; uno de los cuatro factores de producción, no incluye al empresario (p. 8) labor force: see civilian labor force (p. 370) labor force: ver civilian labor force (p. 370) labor union: organization that works for its members’ interests concerning pay, working hours, health coverage, fringe benefits, other job related matters (p. 81) sindicato obrero: organización que obra en beneficio de los intereses de sus miembros respecto a pago, horas de trabajo, seguro médico, beneficios complementarios y otros asuntos relacionados al trabajo (p. 81) laissez-faire: philosophy that government should not interfere liberalismo: filosofía de que el gobierno no debe interferir con with business activity (p. 169) las actividades comerciales (p. 169) land: natural resources or “gifts of nature” not created by human effort; one of four factors of production (p. 8) tierra: recursos naturales o “dones de la naturaleza” no creados por el esfuerzo humano; uno de cuatro factores de producción (p. 8) Law of Demand: rule stating that more will be demanded at lower prices and less at higher prices; inverse relationship between price and quantity demanded (p. 93) Ley de Demanda: principio que dicta que se demanda más a precios bajos y menos a precios altos; relación inversa entre precio y cantidad demandada (p. 93) Law of Supply: principle that more will be offered for sale at Ley de Oferta: principio que dicta que se ofrece más a la high prices than at lower prices (p. 117) venta a preci

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