Archive for the ‘Economics’ Category

Real World Graduation, Question 68: Home Ownership

RealWorldGraduation_Question_68_HomeOwnership   <– PDF

Why is owning your own home a good investment?

a) In the long run, values of houses tend to go up, thus owning a home causes a person’s net worth to increase over time.

b) The federal government and most state governments give homeowners an income tax deduction for interest payments made on a house (if it’s a primary residence).

c) It is easier to customize and decorate one’s own house to one’s own tastes, which is not normally permitted when leasing or renting.

d) One will be able to live very cheaply after the house is paid off, whereas one never stops paying rent.

e) A combination of a), b), and d).

 

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

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RealWorldGraduation_Question_64_EconomicConsequences   <– PDF

A local neighborhood gang threw a party, and in the course of having a good time, smashed 1000 beer bottles all over a residential street. The gang members all left the area before the cops showed up, and none were arrested or charged.  The beer had been purchased at a local store, the gang members all paid a deposit to the store on the beer bottles that they subsequently broke.  No matter what you think about parties, or beer, or about gangs in general, consider this action in the economic sense.  In what economic sense did the gang members indirectly perform the most useful economic service?

a) The store that was paid the deposit on the beer bottles gets to keep the deposit paid by the gang members.

b) It is possible that some people will make money when they are paid to clean up the broken beer bottles.

c) Broken beer bottles are a true sign of urban life, and will probably increase the partying type of tourism in that area.

d) Some people will run over the beer bottles and get flat tires, which have to be replaced, which will cause those who manufacture, sell, and install tires will earn money.

e) Some combination of a) and d).

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

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Real World Graduation, Question 61: Car Leases

RealWorldGraduation_Question_61_CarLeases   <– PDF

Dear readers:

Please select the  PDF to view both the question and answer in this edition.  As always, the answer is on p. 2.

Thanks,

EDD

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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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