Archive for the ‘Economics’ Category

Real World Graduation, Question 58: Credit

RealWorldGraduation_Question_58_Credit   <– PDF

Credit is a situation in which a person or institution lends money to another person or institution upon a written promise to repay the loan. The loan is usually repaid at an agreed-upon interest rate.  This additional amount paid by the borrower to the lender is the fee to the lender for the use of his (or the lending institution’s) money.  In other words, the lender gives his capital temporarily to the borrower; the borrower repays the amount borrowed plus a certain percentage per year at a certain rate.  The additional amount repaid is income to the lender for the borrower’s use of his capital.

 

Normally individuals borrow from banks or credit card companies, but not every person is allowed to borrow the same amount. Some people are allowed to borrow more than others.  Why do banks and credit card companies give credit unequally?

a) Most banks prefer to deal with people they know, and are more likely to be more liberal in the amount of credit they give – in other words, those who know bankers and those who work at credit card companies have an advantage.

b) People who are given less credit are victims of some bias or prejudice by the banks and credit card companies; in fact offering different credit levels is a violation of the Fair Lending Act.

c) Banks and credit card companies give credit based on what is necessary to maintain their lifestyle. Therefore, wealthy people are given more credit than the middle class people, and middle class people are given more credit than poor people because the wealthy have more day-to-day needs than the middle class, and the middle class likewise has greater need than the poor.

d) Banks and credit card companies prefer to give more credit to those who are desperate, because they can squeeze a higher interest rate out of them.

e) Some combination of the above, depending on state regulations

(The answer is on p. 2 of the PDF.)

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Real World Graduation: Question 53: Rising Debt

RealWorldGraduation_Question_53_Rising_Debt   <– PDF

A certain man has a steady job and earns a good income. However, he likes to spend more than he makes.  In fact, he has no savings or assets, and he spends about 10% more than he earns every year.  At first he financed his excesses by running up large balances on his credit cards.  Then, when they were at their maximum, he opened up new accounts, paid off the old accounts, and continued to run up debt on the new accounts.  He eventually had to stop paying on the principal he owes, and is now only paying the current monthly interest due (although the principal keeps rising due to his continued spending).  Over time, he earns more income, but continues to spend about 10% more than he earns, year in and year out.  What is his long-term financial outlook?

a) Gradually, the effect of inflation, in which each new dollar has less buying power, will serve to reduce the true debt and he will then be able to pay it off.

b) In the long run, his real income after inflation will continue to rise, and he will be able to grow his way out of debt.

c) He has purchased a number of things with the debt, and can sell them when he needs to in order to pay off the debt.

d) He will be able to borrow indefinitely, since the creditors realize that they may lose what he already owes them if they force him into bankruptcy.

e) Some combination of two or more of the above.

(The answer is on p. 2 of the PDF.)

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Real World Graduation 48: Paying Bills

RealWorldGraduation_Question_48_Paying_Bills   <– PDF

Which of these should be paid first?

a) Rent or mortgage

b) Car payment

c) Credit card bill

d) Any utility bill (gas/electric/water)

e) A bill from a doctor, dentist, chiropractor, or lawyer

(The answer is on p. 2 of the PDF.)

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Real World Graduation Question 46: Music Videos

RealWorldGraduation_Question_46_Music_Videos  <– PDF

The first music video network, called “Music TV”, better known as MTV, was launched in Aug 1981. It began by showing video clips of musical acts, and later expanded to commentary on popular culture, reality shows, satire, and some political activism, mostly concerning the environment and getting young people to vote.  There are now several music video networks, among them are VH1 and CMT.  What is the underlying purpose of the music video networks?

a) To finally give young people an opportunity to see their favorite musical acts without censorship by the traditional networks

b) To allow a youth-oriented culture to express itself over the airwaves

c) To provide an opportunity for up-and-coming musical acts to obtain some exposure

d) To allow the recording companies to test the potential popularity of their new acts before committing to a full contract

e) All of the above

(The answer is on p. 2 of the PDF.)

 

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