Unit 3: Economics!

1. Unit 3: Economics! Chapter 10: Economics: Close to Home Chapter 11: The Atlantic Economy Chapter 12: Our Economic Outlook

2. What is Economics??

3. Money: What is it?! • What is money? Why is paper worth anything? Why can we exchange paper for stuff of real value? Where does it come from?

4. Money: What is it?! (Handout) • Money: any article or substance used as a medium of exchange, measure of wealth, or means of payment for items of real value. • Debit:a payment made or owed. • Credit:the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. • Debt:something, typically money, that is owed or due. • Loan:a thing that is borrowed, esp. a sum of money that is expected to be paid back with interest. • Mortgage:when a debtor offers real property to a creditor as security for a debt, on the condition that it shall be returned on payment of the debt plus interest within a certain period. • Interest: an extra sum of money charged to the debtor as a fee for his borrowed money. • Depositor:a person who keeps money in a bank account. • Borrower:take and use (money) from a person or bank under an agreement to pay it back later.

5. Money and banking (handout) • How does banking work? We, as depositors, give a bank our money to keep it safe for us. The bank then uses all of its depositors’ money to lend out to other people in loans in the form of credit and mortgages. The banks charge interest on these loans from which they make a great profit. In return for allowing the bank to use your money, the bank pays you a small percent of interest on your deposits. Banks can, however, legally extend considerably more credit than they have cash in their vault. • Why do we feel better about having our money in a bank than we do having it under a mattress? • Banks provide a secure place for us to keep our money so we do not have to worry about it. • Banks pay us interest for our money (profit). • Convenience! We can use debit cards and checks rather than cash and coins. • It is easier to save money when it is not in our pockets to spend.

6. Money as Debt: Video (Handout) • 0:00 - 7:10, 7:10 - 9:50 • A prominent banker, Mayer Anselm Rothschild, stated: “(p)ermit me to issue and control the money of a nation, and I care not who makes its laws” (Money As Debt). What does Rothschild mean by this in your opinion? • Who produces most of society’s money? Private corporations called banks. • What does the narrator mean when he says that, in the process of a loan, banks “get to conjure into existence the amount of the loan and just write it into the borrower’s account”? Banks create money out of thin air and deposit it into the borrower’s account. • Finish the following sentence: In ancient times, any item that was portable (or that could be carried) could be used as money. It just had to be portable and enough people had to have faith that it could later be exchanged for things of real value like food, clothing, and shelter.

7. Money as Debt: Video (Handout) • 0:00 - 7:10, 7:10 - 9:50 • What made gold and silver a prominent form of money for many cultures? • What are the “claim cheques” mentioned in the video that were being traded in the market as if they were gold itself? Paper money that was far more convenient and just as valuable as the gold itself that was stored in the vault still. • The goldsmith who originally made the coins was keeping people’s coins in his vault for a small rental fee. He realized that people rarely ever came back to take out their actual gold from his vault so he started doing what? The goldsmith started lending out claim cheques against his depositors gold, in addition to his own, with interest. • The depositors became very suspicious of the goldsmith’s wealth and went to him to check on their money. Rather than pull their money from his vault, what did they instead insist? The goldsmith would pay the depositors a share of the interest. This is banking.

8. Money as Debt: Video (Handout) • 0:00 - 7:10, 7:10 - 9:50 • The narrator describes the process of banking between 6:49 and 7:00. What is it? The banker paid a low interest rate on the deposits of other people’s money that he then loaned out at a higher interest. The difference covered the bank’s cost of operation and its profit. • Why could the banker start lending out more money than he actually had in his vault and get away with it? Because no one knew exactly how much he had in the vault so he could write claim cheques for as much as he wanted. • Explain what happens when there is a “run on the bank”. When all of the depositors show up to claim their deposits, the bank goes broke, because the bank does not have as much gold in its vault as there are deposit slips among people. • Why did the courts originally allow banks to continue creating money out of thin air and even legalize it? This system had become essential to the success of European economic and military expansion. • For every one ‘real’ dollar the bank has in its vault, how many ‘fictional’ dollars is it allowed to create and lend? Nine.

9. Chapter 10: Economics Notes (Handout) • The study of our efforts to satisfy our unlimited wants through the use of limited resources is known as economics. • Economics begins with scarcity. Something is scarce only if someone will buy it for a price. If you want to know whether something is scarce or not, try to sell or exchange it. If you can get something in return, you know it’s scarce. • A commodity is something of use, advantage, or value within the economy. • Economists divide scarce things into two groups: goods (commodities or products such as sugar, lumber, or computer chips) and services (such as those of a barber, musician, or architect). Examples for each?

10. Chapter 10: Economics Notes (Handout) • When something is scarce, it has to be rationed, or limited, in some manner. • The usual way of determining who gets scarce things is in price rationing. This is when scarce items are made too expensive for the general population. For example, if you were a millionaire, you could afford very scarce items such as a Mercedes Benz, but most of the population will be limited to cheaper forms of transportation. • Opportunity cost is the opportunities you give up to purchase an item. For example, you are extremely hungry and thirsty but you also want to see a movie at the theatre. You do not have enough money to do both. If you decide to see the movie, it will cost you the opportunity you had to nourish your body.  Examples of moments when you’ve made the right and wrong decisions in terms of opportunity cost when buying scarce services or commodities?

11. Chapter 10: Economics Notes (Handout) • We, the consumers, create demand for an item when we are willing and able to give something of value – usually money – for it. • Economists don’t differentiate between needs and wants; both are classified as demand. • Anything that is scarce enough to demand a price is classified as an economic good or service. • On the demand side of the market are consumers (buyers) and on the supply side are the producers (sellers).

12. Chapter 10: Economics Notes (Handout) • The hidden market is made up of consumers who demand a certain product but cannot or will not pay the price asked. • For example, you own a pizza business and you sell your slices for 10 AED a piece. You know there is a whole market out there who either will not or cannot pay 10 AED for your slice so you add a 2 AED hot dog to the menu. • The substitution effect tells us that for any economic good or service, there is a substitute. If the price of one product is too high, people will tend to buy a substitute. • A hot dog or a half slice of pizza for example.

13. Scarcity and Value! • If everyday you came to class unprepared to write your notes because of a major scarcity of pens and pencils in the city, what would happen to the value of pens and pencils in Abu Dhabi and, especially, within the schools?? • Case 1 & 2, p. 142

14. Impulse Buying! • Impulse buying is what we do when we make a purchase without weighing (or at least properly weighing) the opportunity costs. • 2. a), b), & d) on page 143.

15. The Law of Supply and Demand • Generally, the market, or economy, works in the following cycle: • High quantity demanded = high prices • Low quantity demanded = low prices • High quantity supplied = low prices • Low quantity supplied = high prices • Example: Often, producers purposefully keep their stock off of the market to keep prices very high. • Can you think of an example of a product that, at one time, was scarce and was a commodity wanted by everyone, but is now everywhere and unwanted?

16. A Matter of Interest • What is interest? • In what ways can it help us? • In what ways can it hurt us?

17. A Matter of Interest • When we borrow money from a bank or other financial institution and we agree to pay that institution back more than the original sum borrowed, we are paying interest. • The principle is the original amount borrowed, and the interest is the profit made from it. • Page 150.

18. A Matter of Interest cont’d • When it comes to interest, we must be extremely careful about what kind of rates we accept regardless of how good they may seem at the time when there may be other options. • In a 31 day month: • Option 1: $7.75 million ($250 000 x 31) • Option 2: 10.74 million (0.01 x 2 = 0.02; 0.02 x 2 = 0.04; 0.04 x 2 = 0.08; 0.08 x 2 = 0.16; etc.)

19. A Matter of Interest cont’d • When we borrow money from a bank to meet our needs and wants, we agree to pay back a larger amount after a period of time. Similarly, when we invest or save money, we earn back more than the original sum. • The amount paid per hundred dollars per year is known as the rate of interest. It is expressed not as dollars, but as a percent (%).

20. A Matter of Interest: Amortization • Amortization is defined as the payment of any obligation through a series of installments or transfers. When we make a purchase, we can choose to make a payment of monthly installments of predetermined amounts. • This is done since if the value of the product or the service that we wish to purchase is rather high, then it would be unfair to expect everyone to have such large amount of cash at hand. • The number of months over which the customer chooses to make the entire payment is called the amortization period.

21. Calculating Amount Owing/Debt • D= Previous Total Balance – (TP-(IR/NP x PB)) • Where: • D = Debt • IR = Interest Rate • NP = Number of Payments

22. Calculating Amount Owing/Debt • How do you calculate how much a loan is going to cost? There are 5 factors you must first know: 1) total principle, 2) total interest rate, 3) agreed payment rate, the 4) amortization period, 5) the monthly interest rate. • For example, let’s say you want a loan of $2000.00. The bank tells you that you can have an 11% interest rate. You have agreed to make payments of $155.75 per month and your amortization period is 12 months. What are your four factors for calculating interest? • Total Principle: __________ • Total Interest Rate: __________ • Agreed Payment Rate: __________ • Amortization Period: __________ • Monthly Interest Rate: __________

23. Calculating Amount Owing/Debt • Now, what do you do with this information to figure out how much your interest payments are going to be? Follow this process and complete the steps below with the above example and show your work: • You divide your interest rate (11% or 0.11) by your amortization period and you will have your interest rate per payment each month. For this class, you will take this number to five spaces after the decimal point – do not round anything. E.g. 0.00123 ______________________________________________ • This number is to be multiplied by your remaining principle to figure out how much of your monthly payment is interest. That is, how much of your $155.75 payment is profit for the bank. ______________________________________________

24. Calculating Amount Owing/Debt • Subtract this amount of interest from your payment to find out how much of your payment goes toward the actual principal. __________________________________________ • We then take this final amount of your payment off of your total principal. How much principal is left owing the bank now? __________________________________________ • After all of this, we have figured out how much interest, and how much principal we will pay on the first payment of our loan from the bank.

25. Calculating Amount Owing/Debt • The following is a step-by-step process of what you just did: • Interest ratedivided byNumber of Payments during Amortization Period = payment interest rate • Payment interest ratemultiplied byyour principal’s current balance = the amount you owe in interest for that payment • Your total payment amountminusthis payment’s interest = the exact amount of payment on your principal • Subtractthe payment on your principal from the previous total balance on your principal = your current debt to the bank

27. Calculating Interest Handout 1 • If your new mountain bike costs $1500.00 exactly, how much extra did you end up paying in interest in exchange for taking out a loan from the bank? $111.34. • Month to month, what happened to your a) principal payment and your b) interest payment? My principle payment increased as my interest payment decreased. • Thinking of these trends, what would happen to your interest payments if you were making extra payments here and there throughout each month and why? If I was making extra payments, my principle would continue to decrease. This means that, as a result, my interest payments would decrease a lot more because there is less principle to pay on. • Come up with at least two ways in which you could have purchased the bike at its regular price and avoid having to go to a bank and pay interest. a) Get a job/save allowance for the bike (just wait), b) wait until it goes on sale or its price goes down, c) sell some belongings of value to increase your money, d) borrow the money from a parent, relative, or friend so you don’t have to pay the amount back with interest.

28. Interest Assignment 2

29. Questions: 1) Total your interest amount after the 6th payment (10/10/2011) from your first assignment and put the total in this space: $83.05. 2) What is your balance after the 6th payment from your first assignment: $739.75. 3) What is the total interest paid after 6 payments with the credit card? $178.36. What is the difference between the two? $95.31. 4) What is the total balance left after 6 payments with the credit card? $835.06. What’s the difference between the two? $95.31. 5) It is obvious the differences between the two types of credit. Why, do you think, would anyone ever choose to use a credit card over another type of loan with lower interest? Give at least two reasons. ________________________________________________________________________________________________________________________________________________________________________

30. 1) Total your interest amount after the 6th payment (10/10/2011) from your first assignment and put the total in this space:___$83.17________________. 2) What is your balance after the 6th payment from your first assignment:__$739.87_________________. 3) What is the total interest paid after 6 payments with the credit card? ___$141.16_____________. What is the difference between the two? ___$57.99________________. 4) What is the total balance left after 6 payments with the credit card?___$797.86________________. What’s the difference between the two? ____$57.99_______________. 5) It is obvious the differences between the two types of credit. Why would anyone ever choose to use a credit card over another type of loan with lower interest? Give at least two reasons.

31. Credit! • Know the difference between consumer credit and investment credit. If you borrow to attend university, finance a small business, or buy a home, you are investing. If you borrow to take a vacation or buy new stereo equipment, you are consuming. • Know the cost of credit. The rate of interest advertised at an appliance dealer, a car dealer, or a bank may not tell the whole story. There can be extra, hidden costs. Payment schedules can also make a dramatic difference to the cost of borrowing money so investigate your options there as well.

32. Chapter 11: The Atlantic Economy

33. Sectors of the Economy • Page 156, 157 • All goods and services that you use in a day – be they your sneakers or your cafeteria lunch – are related to different types of activity in your economy. These types of activities can be broken into four sectors

34. Sectors of our economy • Primary Industry refers to activities in which people use, extract, or harvest natural resources such as water, soil, fish, animals, plants, trees, minerals, or fuels. Fishing, mining, forestry, and agriculture are all primary industries. • Secondary Industries process raw materials into finished goods. During this process, raw materials are processed into products that are of more value. Manufacturing and construction are part of the secondary sector.

35. Sectors of our economy • Tertiary Industries enable consumers to obtain and use finished goods. Workers in this sector provide services rather than goods. Sales, repair services, banking, and insurance are all part of the tertiary sector. • Quaternary Industries involve specialized technology and research. Research scientists and computer software designers are examples of people who work in quaternary industries.

36. Class Discussion: Which industries directly provide for you? • Thinking about your livelihood (the main professions or industries your parents or main providers work for), which industry – Primary, Secondary, Tertiary, or Quaternary – provides your main source of income? • Work this into class percentages. • Compare these figures with those of Atlantic Canada on pg. 157. What are the major differences? • What do these figures tell us about the economy – and even the culture – of our class and our differences from Atlantic Canada?

37. Sectors of our economy cont’d • These sectors of the economy combine to produce the Gross Domestic Product (GDP) – the total value of goods and services produced within a given area in a given year. • GDP can be given for a province, an emirate, a state, a region, or a country. • Most economists pay close attention to GDP because the figures , taken over time, indicate whether an economy is growing, staying the same, or declining. • GDP is often mistaken for national happiness or the greatness of a country. So, many times, there is a shift in focus from the needs of the welfare and well-being of a country’s people to the needs and well-being of country’s economy. There are connections between the two, of course, but not always. • In what ways can GDP be connected to the well-being of a people? In what ways are there no connections between the two? • Complete #1 on pg. 158

38. Industry in Atlantic Canada (handout) • Read pages 159 – 163 and answer the following questions: • Write out the book’s definition of natural resources. • What are the three conditions that must be met before a natural material considered a resource? • Primary industries are in decline in Atlantic Canada – give three reasons why. What are the examples given? • In what way is primary industry changing and what industry is responsible for this? • What is aquaculture? • What is allowable annual cut and what factors are considered when setting the AAC? • Write the book’s definition for mining. • What natural resources are generally excavated in the mining process and what are some things these materials are used to create in secondary industries? • Write the book’s definition for farming and describe the three main stages. • Which province has the highest GDP in the following industries: fishing, forestry, mining, and farming? • Which Atlantic Canadian province’s GDP relies most on its primary industries and which Atlantic Canadian province’s GDP relies least on its primary industries? Name the provinces and give their total % of GDP in the primary industry. Due: Wednesday

39. Primary Industry in Atlantic Canada (Handout) • Read pages 159 – 163 and answer the following questions: Q: Write out the book’s definition of natural resources. A: Natural resources are the materials found in the natural environment that humans can use to satisfy their needs and wants. Q: What are the three conditions that must be met before a natural material considered a resource? A: First: society must feel it needs the material, Second: technology must advanced enough to extract, or harvest, the material. Finally, it must be economical to extract the natural material and put it to use.

40. Primary Industry in Atlantic Canada (Handout) Q: Primary industries are in decline in Atlantic Canada – give three reasons why. What are the examples given? A: Primary industries are in decline resources are becoming depleted as is the case with the fishing industry. Others are in decline because of changing consumer demand. This is the case with coal mining as other sources of energy have become more widely available. Others have suffered from competition from other countries For example, producers in the Southern United States can produce lumber more cheaply than Canadian producers can. Q: In what way is primary industry changing and what industry is responsible for this? A: Traditionally, primary industries required large numbers of manual workers, with very specific skills. Today, many are using new technology that has changed these requirements. The quaternary industry is responsible for this. Q: What is aquaculture? A: Fish farming.

41. Primary Industry in Atlantic Canada (Handout) Q: What is allowable annual cut and what factors are considered when setting the AAC? A: The Allowable Annual Cut is the amount of timber that can be cut each year according to the limits set by the provincial government. Q: Write the book’s definition for mining. A: Mining refers to activities that take mineral substances from the Earth. Q: What natural resources are generally excavated in the mining process and what are some things these materials are used to create in secondary industries? A: Mining substances may be metallic, non-metallic, or fossil fuels. We use these materials to produce items like heavy equipment, construction materials, heating fuel, and household appliances.

42. Primary Industry in Atlantic Canada (Handout) Q: Write the book’s definition for farming and describe the three main stages. A: Farming is a set of activities devoted to producing food and other products from the land. The first stage of farming is called “input” and it includes everything needed to grow a crop. The second stage, “process”, is when the farmer carries out all the activities needed to bring the crop to maturity. If all works to the farmer’s advantage and he is able to yield a good crop, the final stage is the “output” of the crop. Q: Which province owes its highest provincial GDP to the following industries in 1998: fishing, forestry, mining, and farming? A: Fishing: P.E.I. at 2%, Forestry: New Brunswick at 2.1%, Mining: NFLD & Labrador at 3.9%, Farming: P.E.I. at 7.9%. Q: a) Which Atlantic Canadian province’s GDP relies most on its primary industries and which Atlantic Canadian province’s GDP relies least on its primary industries? b) Name the provinces and give their total % of GDP in the primary industry. A: Most = P.E.I. with about 10.50% of its GDP owing to the primary industry and Least = Nova Scotia with 5.4% of its GDP owing to the primary industry.

43. Sectors of Economy Class Assignment (handout) • In groups of three, you will conduct a survey around the school. You will ask 20 students what their household’s main provider’s occupation is and then identify in which of the 4 sectors it belongs. • You cannot conduct this survey with anyone in grades Primary – 6 or grade 9. You will survey 5 students from grade 7, 5 students from grade 8, and 10 students from high school. • Of these students, 10 must be females and 10 males. • You will create a chart showing all of your data compiled into numbers and percentages. You may look at the chart on page 158 for guidance. • You will then create a bar graph or pie graph – properly labeled including a title – showing the different sectors divided by percentage. • You will complete 2. b) on page 158 as a part of this assignment and you will then answer this question: What do you think these results say about the culture and economy you live in? • This is a formal assignment so all parts except the survey must be typed and formally presented. When you are finished with this assignment, you will have the following: • A title page including a title, your names, the date, and my name • A numbers and percentages chart showing the compiled data • A bar or pie graph properly labeled • 2. b) on pg. 158 as well as my extra question fully answered in a formal manner • All of your surveys filled out and attached to the back • This assignment is due Monday April 16th

44. Chapter 12: Our Economic Outlook

45. The New Economy (handout) • Old Economy: The old economy of the world is one that relied heavily on the primary and secondary industries. It was very resource-based and demanded many manual workers who may or may not have had a formal education. • Since the 1980’s, computers and other rapidly changing technologies have revolutionized the world of work. • As a result, the economy has drastically changed and will continue to change in years to come into one where the service industries (tertiary and quaternary) are the biggest employers.

46. The New Economy (handout) • Now, much of the manual labor that used to be needed in the primary and secondary industries has been replaced by new technologies and methods created by the quaternary industries and serviced by the tertiary industries. • These changes have been given several names including “The Technology Economy” and “The Knowledge-based Economy”. It is all known as the New Economy.

47. Quality of Life (handout) • Read page 183, look at table 12.1 • There is more to quality of life than just a good economy. • The United Nations uses the following criteria to measure the conditions of the countries of the world. These include: • Gross Domestic Product (GDP) per person • Birth rate • Life expectancy • Literacy (ability to read and write) • Maintaining the environment • Racial and gender equality

48. Having stated this, it must be recognized that the riches of the world are not divided evenly; therefore, it is not reasonable to assume that all, most, or even many nations will have high standings in the above criteria. Many problems within nations and between nations occur due to disparity. This is the gap in the standard of living between two regions or peoples. • Can you think of examples of national or international disparity?

49. Top 10 countries using these criteria (2009) • Norway • Australia • Iceland • Canada • Ireland • Netherlands • Sweden • France • Switzerland • Japan

50. Industrialization: Sheikh Zayed Road, Dubai Late 80’s