ECONOMIC E HANDBOOK EECONOMICCONOMIC ... - SL...

Reinforcing Economic Skills 1

Reinforcing Economic Skills 1 Reinforcing Economic Skills 1


xv

Economic Handbook xv

ANALYZING VISUALSANALYZING VISUALS

Part

icip

ants

(in

mill

ions

)

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

.5

1975 19801970 1985 1995 20001990Year

Participation in High School Athletic Programs

Males

Females

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.

PRACTICING THE SKILL1. About how many males participated in

high school athletic programs in 1970?In 1997?

2. About how many females participated inhigh school athletic programs in 1970?In 1997?

Using Line Graphs

LEARNING THE SKILLFollow these steps to learn how to

understand and use line graphs. Thenanswer the questions below.

Applying the Skill to Economics

1. What trends are shown on the graph?

2. How do you think these trends affected the manufactureand sale of sports-related products from the early to late 1990s?

5. Select a point on the line, then note the date below thispoint on the horizontal axis and the quantity measuredon the vertical axis.

6. Analyze the movement of theline (whether increasing ordecreasing over time) or com-pare lines (if more than oneare on the graph) to deter-mine the point being made.

1. Read the title of the graph.This should tell you what toexpect or look for.

2. Note the information on the left side ofthe graph—the vertical axis. The informa-tion being compared usually appears onthis axis.

3. Note the information along thebottom of the graph—the hori-zontal axis. Time often appearsalong this axis.

4. Determine what the line(s) orcurve(s) symbolizes.

xivxiv

ANALYZING VISUALS

◆ Using Line Graphs ...............................xv◆ Using Bar and Circle Graphs .............xvi◆ Using Tables and Charts ...................xvii◆ Reading Maps....................................xviii

APPLYING MATH CONCEPTSAND METHODS

◆ Understanding Percentages................xix◆ Determining Averages:

Mean and Median ................................xx◆ Understanding Nominal

and Real Values ...................................xxi

ANALYZING FINANCIAL INFORMATION

◆ Understanding Interest Rates ...........xxii◆ Reading the Financial Page..............xxiii

ECONOMIC HANDBOOKECONOMIC HANDBOOK

CONTENTS

xiv

Answers to PRACTICING THE SKILL

Answers to Applying the Skill to Economics

1. about 3.6 million; about the same number2. about 250,000; about 2.3 million

1. Answers may note that the number of males participating in high school athletic pro-grams peaked around 1975, then decreased and is slowly increasing again. The num-ber of females in high school athletic programs increased dramatically from 1970 to1975, and has been increasing slowly since then.

2. Answers may note that manufacturers of sports-related products for both males andfemales experienced increased sales from the early to late 1990s.

Discuss with students any diffi-culties they have in understandingeconomic statistics and graphicinformation. Point out that thesteps described in this Handbookwill help them simplify the task oflearning economics. The Handbookwill also give them tools they needto analyze and understand otherforces shaping their lives—figuringsales tax, averaging their semestergrade, and figuring how muchinterest their savings account willearn, for example.

Each skill in this Handbook isaccompanied by a reproduciblemaster in the ReinforcingEconomic Skills booklet in theTeacher’s Classroom Resourcepackage.

Using Line GraphsTell students that graphs are a

good way to present data in a waythat readers can grasp easily andquickly. Inform them that graphscome in many forms—line graphs,bar graphs, and circle graphs arethe most common. (How to use bargraphs and circle graphs isexplained on page xvi.)

Each type of graph has a differentway of displaying information. Linegraphs show data and how theyhave changed over time, which isgood for showing trends and predic-tions. Remind students to familiar-ize themselves with the label on thevertical axis. This label tells what isbeing compared—often quantities orpercentages. The label along thehorizontal axis is usually time-related—years, months, and so on.

ECONOMICHANDBOOKECONOMICHANDBOOK


Teacher’s Notes

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U SING GRAPHS A graph is one way of showing numerical values visually. Graphs are often used to comparechanges over time or differences between groups. Graphs come in many forms. The most com-mon types of graphs are line graphs, bar graphs, and circle graphs.

Directions: The graph below shows both changes over time and differences in the contributions of variousfactors of economic growth. Study the graph and answer the questions that follow.

1. What was the most important contributor to growth during the 1961–69 expansion?

2. How have net exports affected growth?

3. During which expansion was the contribution of consumption greatest?

4. During the 1982–90 expansion, which had a greater effect on economic growth, fixed investment or govern-ment spending?

Consumption Fixed Investment Government Net Exports

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60

40

20

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–20

Contributions to Economic Growth in Three Long Expansions

1961–69 1982–90 1991–2000

Sources: Department of Commerce (Bureau of Economic Analysis), National Bureau of EconomicResearch, and Council of Economic Advisors

Name Date Class

1


xvii

xvii


Source: U.S. Bureau of the Census

Some HighSchoolAll Workers Age and Sex

High SchoolGraduate

Four-YearCollege Degree

Male

Average Earnings of Full-Time Workers by Age and Education, 1996

18–24

25–34

35–44

45–54

55–64

Female

18–24

25–34

35–44

45–54

55–64

$42,077

18,856

33,055

45,840

51,705

49,916

$25,283

15,478

19,910

26,116

34,527

32,926

$32,521

18,779

27,349

35,138

39,178

38,032

$63,127

27,257

44,355

70,035

72,461

71,070

$28,363

17,002

26,119

30,879

31,222

27,629

$17,313

12,512

16,826

18,261

18,007

19,039

$21,893

15,219

19,526

23,134

23,833

23,179

$41,339

24,980

34,132

46,923

45,012

41,342

Tables and charts are often used to show comparisons between similar categories of informa-tion. Tables usually compare statistical or numerical data. Tabular data is presented in columnsand rows. Charts often show a wider variety of information than tables.

PRACTICING THE SKILL1. What are the average earnings for

25- to 34-year-old women with collegedegrees?

2. What are the average earnings for 18- to 24-year-old males without highschool diplomas?

Using Tables and Charts

LEARNING THE SKILLFollow these steps to learn how

to understand and use tables. Thenanswer the questions below.


1. What age-related trends do you notice?

2. What conclusions could you draw from this data about theeconomic effect of education on earnings?

Economic Handbook

1. Read the title of the table tolearn what content is beingpresented.

2. Read the headings in the toprow. They define the groups orcategories of information to becompared.

3. Examine the labels in theleft-hand column. Theydescribe ranges or sub-groups, and are oftenorganized chronologicallyor alphabetically.

4. Note the source of the data. It may tellyou about the reliability of the table.

5. Compare the data presentedin the other columns. This isthe body of the table.

Economic Handbook

10987654321

Model Year

Vehi

cles

(in

mill

ions

)

Source: U.S. Bureau of Economic Analysis, 1997

New Vehicle Sales, 1992–1997

1992 1993 1994 1995 1996 1997

Trucks

Cars


understand and use circle graphs.

Using Bar Graphs LEARNING THE SKILL

Follow these steps to learn how tounderstand and use bar graphs.


1. Using the bar graph, what projection could you makeabout the future of new car sales?

2. Based on the circle graph, which foreign language text-books probably have the greatest sales volume?

xvi


PRACTICING THE SKILL1. What percent of foreign language stu-

dents are studying German?

2. What foreign language has the greateststudent enrollment?

PRACTICING THE SKILL1. What year had the highest new car sales?

2. About how many trucks sold in 1997?

Using Circle GraphsHigh School Student Foreign

Language Enrollment23% 67%

7%3%

French

German

Other

Spanish

Source: Statistical Abstract of the United States, 1998

2. Examine a bar on the graph. Note the datebelow the bar on the horizontal axis and thequantity measured on the vertical axis.

3. Analyze the change over time orcompare bars to determine thepoint being made.

2. Read the legend to see whateach segment represents.

1. Examine the title to determine the subject.

3. Compare the relative sizes of the circlesegments, thus analyzing the relationshipof the parts to the whole.

1. Read the title and labels. They tell youthe topic, what is being compared, andhow it is counted or measured.

xvi



Using Bar Graphs Using Circle Graphs1. 1994 1. 7 percent2. about 7 million 2. Spanish

1. Answers will vary, but students should infer that new car sales are declining slightlyeach year.

2. Spanish



1. $34,1322. $15,478

1. Answers will vary, but students should infer that for men and women of all educa-tion levels, average earnings rise through the 40s or 50s and then decline.

2. Answers will vary, but students should infer that the higher the education level, thegreater the earnings.

Using Tables andCharts

Ask how many students haveafter-school jobs. How many playon a sports team? Then tell themthat statistics like these could beexplained in text form, but a tableor a chart would present the infor-mation in a more concise and easilyinterpreted format.

Have students analyze the infor-mation in the table on this page.ASK: What information is beingcompared? (average full-time workerearnings for gender and age groups,based on education level) How is theinformation grouped into cate-gories? (by gender and age and byeducation level)



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U SING GRAPHS A graph is one way of showing numerical values visually. Graphs are often used to comparechanges over time or differences between groups. Graphs come in many forms. The most com-mon types of graphs are line graphs, bar graphs, and circle graphs.

Directions: The graph below shows both changes over time and differences in the contributions of variousfactors of economic growth. Study the graph and answer the questions that follow.

1. What was the most important contributor to growth during the 1961–69 expansion?

2. How have net exports affected growth?

3. During which expansion was the contribution of consumption greatest?

4. During the 1982–90 expansion, which had a greater effect on economic growth, fixed investment or govern-ment spending?

Consumption Fixed Investment Government Net Exports

Shar

e of

tot

al in

crea

se in

GD

P (p

erce

nt)

80

60

40

20

0

–20

Contributions to Economic Growth in Three Long Expansions

1961–69 1982–90 1991–2000

Sources: Department of Commerce (Bureau of Economic Analysis), National Bureau of EconomicResearch, and Council of Economic Advisors

Name Date Class

1


Copyright ©

by The M

cGraw

-Hill C

ompanies, Inc.

2 Reinforcing Economic Skills

U SING CHARTS AND TABLESTables and charts are often used to compare information. Tables present data in columns androws. By looking at a table, you can see trends and relationships more easily than if the infor-mation were written in text form.

Directions: Study the table below and answer the questions that follow.

Population and Gross National Product of Selected Countries, 1999

Source: World Development Report 1999/2000, The World Bank.

1. How does the population of Nepal compare with the population of Australia?

2. Which country listed in the table has the largest population?

3. Which country listed in the table has the highest gross national product?

4. If you divide the GNP by the population, which country has the highest per capita GNP, Honduras or Botswana?

5. How does the per capita GNP of China compare with that of Canada?

Name Date Class

2

Gross National ProductCountry Population (in millions) (in billions of dollars)

Australia 19 380.6

Botswana 2 5.6

Canada 31 612.2

China 1,239 928.9

Honduras 6 4.5

Nepal 23 4.8

United States 270 7,921.3


Using Bar andCircle Graphs

Unlike line graphs, which usu-ally show how data change overtime, bar graphs show data in rela-tion to a fixed scale, which is goodfor comparing items to each other.Have students sit in five rows.Direct each row of students to totalthe number of pets they have. Notethe totals on the board. Then havestudents present the informationon the board in the form of a bargraph.

Explain to students that a circlegraph is like a sliced pie; often, it iseven called a pie chart. Circlegraphs show proportions ratherthan absolute amounts. They oftenare used when the informationbeing compared totals 100 percent.

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xix

APPLYING MATH CONSEPTS AND METHODSAPPLYING MATH CONCEPTS AND METHODS

If you shop, you probably like seeing the word percent. Stores often advertise sale prices asa percent of regular price. Percent means “parts per hundred.” So, 30 percent means the samething as 30/100 or 0.30. Expressing change as a percentage allows you to analyze the relativesize of the change.

PRACTICING THE SKILL1. A store advertises a shirt at 25 percent

off the original price of $44. What is thesale price?

2. What is the percentage increase in highschool enrollment from 1,165 studentsto 1,320?

Understanding Percentages

LEARNING THE SKILLFollow these steps to learn how to cal-

culate and use percentages. Then answerthe questions below.


In 1997 about 32 percent of all music recordings sold wereclassified as rock music. That year about $12 billion was spenton all recordings. How much was spent on rock music?

Economic Handbook

Calculating PercentRegular price of shoes $57.00 Regular price $57.00 $57.0030% � .30 Discount �17.10 OR � .70

Discount $17.10 Sale price $39.90 $39.90

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 change0.1

� .067 � 100 � 6.7 percent1.5

4. Calculate an increase insales by subtracting thequantity sold last year fromthe quantity sold this year.

1. Suppose a pair of shoesis on sale for 30 percentoff the regular price.Calculate the discountby multiplying the origi-nal price by the sale per-centage. Change percentto a decimal before youmultiply.

2. Find the sale price by subtractingthe discount from the regular price.

3. Or, figure the sale price by multiplying the regularprice by the percent you will pay. (Subtract the salepercentage from 100 to get the percent you will pay.)Change percent to a decimal before you multiply.

5. Determine the percentage change by dividing the arith-metic difference by the original quantity. Multiply by 100to change the decimal to percent.

THE UNITED STATES: Land Use and Resources

ATLANTICOCEAN

L.Superior

L.Huron

L.Ontario

L.M

ichi

gan

L.Erie

PACIFICOCEAN C A N A D A

STATES

UNITED

Gulf of Mexico

MEXICOTropic of Cancer

120°W 110°W 100°W 90°W 80°W 70°W

60°W

30°N

40°N

60°W130°W 50°N140°W

0

0

500 mi.250

500 km250

Lambert Equal-Area projection

AgricultureRanchingNomadic herdingHunting and gatheringCommercial farmingLittle or no activityManufacturing area

60°N

70°N

Alaska

130°W150°W170°W

Arctic Circle

0

0

300 mi.

300 km

Coal

Fish andother seafood

Forest

Natural gas

Petroleum

Resources

Tobacco

Corn

Wheat

Cotton

Cot

ton

20°N

160°W

Hawaii

0

0

100 mi.

100 km

SugarcaneFruit

Fruit

Pecans

Fruit

N

E

SW

Wheat

Maps are visual tools that show to scale the relative size and location of specific geo-graphic areas. There are political maps, which show human-made boundaries. There arephysical maps, which show physical features of an area. There are also special purpose mapsthat can show historical change, cultural features, population, climate, land use, or resources.Regardless of type, all maps use symbols to convey information.

PRACTICING THE SKILL1. What is the primary content shown on

this map?

2. Which region of the United States hasthe heaviest concentration of manufac-turing areas?

Reading Maps

LEARNING THE SKILLFollow these steps to learn how to understand and use maps. Then answer the questions below.


1. How could this map be a helpful reference if you wereplanning to buy ranch land to raise cattle?

2. What generalizations could you draw from this map aboutenergy resources in the United States?

xviii


Economic Handbook

3. Look for a compass roseor directional arrow tofind the map’s directions.

2. Examine the map’s scale, which indi-cates the ratio between the map’s sizeand the actual area being represented.

1. Read the title to deter-mine the map’s content.

5. Read the legend, or key, to inter-pret any shapes, colors, bound-ary lines, or symbols.

4. Examine the lines of lati-tude and longitude tofind the absolute loca-tion of specific places.

xviii



1. land use and resources in the United States2. the Northeast

1. Answers will vary, but students should infer that the map shows where ranch land islocated.

2. Answers will vary, but students should infer that the map shows abundant petroleumand coal resources, as well as some natural gas and forest resources.



1. $33.002. 13.3 percent

$3.84 billion

Reading MapsDiscuss with students their use

of maps. Most have probably useda map to locate a particular geo-graphic region or land feature. Inaddition, most have probably useda map to help them navigate fromone place to another. Have stu-dents study the map on this page.ASK: Which of the map scalesshown uses the smallest map dis-tance to represent real distance onEarth? (the scale on the Alaska insetmap) What does the color greenon the map represent? (commercialfarming)

Have students draw their ownmaps showing the route they use tocome to school. They should incor-porate symbols representing build-ings, vegetation, and unusual items.Ask them to include a compassrose, a map scale, and a key ontheir maps. If possible, also havethem indicate at what latitude andlongitude their location is.

UnderstandingPercentages

Empty two rolls of pennies(100 coins) into a container. Removefive pennies and ask students whatpercentage of the total number ofpennies the five represent. Write thedecimal .05 on the board. Tell stu-dents that percent means parts perhundred, just as cents are a portionor percentage of a dollar.

Call on a student to determinethe sales tax on an item that sellsfor $10.00 if the tax rate is 4 per-cent. Have the student write the cal-culation on the board. (.04 × $10.00 = $.40)



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R EADING MAPSMaps are visual tools that show the relative size and location of specific geographic areas.Political maps show human-made boundaries. Special purpose maps can show such things aspopulation, historical changes, climate, roads, and resources.

Directions: Study the map below and answer the questions that follow.

1. In which decade did more countries experience banking crises, the 1980s or the 1990s?

2. List three countries that were spared from crises in both periods.

3. During the 1980s and 1990s, which continents were most affected by banking crises?

4. What three continents suffered the most banking crises in the 1980s and 1990s?

Incidence of Banking Crises

1980s

1990s

Both 1980s and 1990s

NorthAmerica

SouthAmerica

Europe

Africa

Australia

Asia

Source: http://worldbank.org/wdr/2000/powerpoint/sld010.htm

Name Date Class

3


Copyright ©

by The M

cGraw

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ompanies, Inc.


U NDERSTANDING PRECENTAGESUnderstanding percentages is very important in business and economics. Discounts, taxes,price changes, and inflation rates are all given in percentages. A percentage is a figureexpressed in hundredths. The figure 2 percent is equal to the fraction 2/100 or the decimal0.02. For example, to figure out how much 2 percent of 250 is, state the percentage as a decimal and multiply the decimal times 250 (.02 � 250 � 5).

Directions: Read the following paragraph, and then answer the questions that follow.

You order 12 cartons of notebooks at $50 a carton. Because you ordered a dozen cartons, you receive a quantity dis-count of 10 percent. You also purchase 50 pens that are on sale for 20 percent of the regular price of $.69 apiece.Finally, you purchase a package of copier paper priced at $8.99 instead of the regular price of $9.99. The tax in yourstate is 5 percent.

1. How much did you pay for the 12 cartons of notebooks? How did you figure it out?

2. How much would you have paid for the 50 pens you purchased if they had not been on sale?

3. How much did you pay for the pens? How did you figure it out?

4. By what percentage was the price of the copier paper you purchased reduced? How did you figure it out?

5. How much tax did you pay on your purchase? How did you figure it out?

Name Date Class

4


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The rise in the economy’s average price level is called inflation. To make comparisonsbetween the prices of things in the past and those of today, you have to make the distinctionbetween nominal, or current, and real, or adjusted for inflation, values. You can use the con-sumer price index (CPI), an index of average prices for consumer goods, to calculate real val-ues. Then you can accurately compare changes in income and prices over time.

PRACTICING THE SKILL1. What was the nominal price increase on

the sale of the house?

2. How much money, in real dollars, wasmade on the house?

3. How much was the real value of theraise?

Understanding Nominal and Real Values

LEARNING THE SKILLFollow these steps to learn how to understand and calculate

nominal and real values. Then answer the questions below.


Between 1980 and 1997, the amount spent on advertising inthe United States increased by 240 percent. How could youadjust this figure for inflation?

Economic Handbook

Purchase price of house in 1990: $50,000 CPI in 1990: 100Sale price of house in 2000: $100,000 CPI in 2000: 200

$100,000 $50,000 � 1 � 100 � 100%

200 100 � 1 � 100 � 100%

� 50,000 $50,000 �100 100$ 50,000 100

100%�100%

0%

Earnings: $10 per hourRaise: 5%Inflation Rate: 3%

5%�3%

2%

5. Suppose that last year you earned $10 per hour. You receive a 5 percentraise. The CPI is 3 percent higher thanlast year’s CPI, which means there is a3 percent inflation rate.

6. Calculate the realsalary increase bysubtracting the infla-tion rate from thenominal raise.

1. Suppose a familysells a house afterliving there for 10years. To calculatewhether they madeany profit from thesale, they need toknow the real saleprice of their house.First, find the nomi-nal price increase.

3. Determine the percentageincrease in the consumer priceindex. First find the actualchange in CPI. Then divide theamount of increase by the origi-nal CPI and multiply by 100.

2. Calculate the nominal percentage increasein price. Divide the amount of increase bythe original price and multiply by 100 toexpress the answer as a percent.

4. Determine the percentage increase in real price.Subtract the percentage increase in CPI from thepercentage increase in nominal price. Evaluatethe sale in real values.

The most commonly used summary statistic is the average. There are two ways to computethe 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 trueif one or two numbers in the series are much higher or lower than the others. The median canbe more accurate. The median is the midpoint in any series of numbers arranged in order.

PRACTICING THE SKILL1. What is the median salary for all seven

students?

2. What is the median salary for the fourlowest-paid students?

Determining Averages: Mean and Median


determine and use averages. Then answerthe questions below.


1. What is the mean monthly rent for these four cities?

2. What is the median monthly rent?

xx


Economic Handbook

Students’ Weekly EarningsFrom After-School Jobs

$ 20323441 $420 � 7 � $605365

175

$420

Median Weekly Income of the Four Highest-Paid Students$ 41 $ 53

53 � 6565 $118 $118 � 2 � $59

175

Average Monthly Rent: 2-Bedroom ApartmentAtlanta, GA $688 Dallas, TX $ 718Boston, MA $906 San Jose, CA $1,139

1. Suppose you want to find themean weekly salary for a groupof teenagers. First, add all theearnings together.

3. Locate the median by finding the midpoint in theseries ($41). Compare the mean with the median.Determine which is the more useful statistic.

4. Suppose you want to calculate the median for the fourhighest-paid students. First, arrange the numbers in order.

5. When an even number of figures is inthe series, the median is the mean ofthe two middle numbers. Followsteps 1 and 2 to find the mean.

2. Divide the sumby the numberof students tofind the mean.

xx



1. $412. $33

1. $862.752. $812



1. $50,0002. none3. 2 percent

You must subtract the inflation rate for the same time period from the increase inadvertising expenditures.

DeterminingAverages: Meanand Median

Mean and median are used oftenin economics to summarize infor-mation. They are particularly usefulfor comparing data over time oramong different categories, such asshowing an increase or a decreasein average wages in manufacturingover five years.

Make sure students understandthe difference between mean andmedian. Have them go through thesteps and calculations several timesto be certain they know how todetermine both measures.

Have students read steps 1–3.ASK: What is the primary reasonfor the difference between themean ($60) and the median ($41)in this example? Students shouldinfer that one student earns morethan twice as much ($175) as anyother student. This high salary skewsthe mean, which makes the medianthe more useful statistic in this case.

UnderstandingNominal and Real Values

Discuss with students whetherthey have ever heard their parents,grandparents, or other older friendor relative talk about how muchthings cost when they wereteenagers. Throughout the historyof the United States, prices havetended to increase over time. Thisphenomenon is called inflation,and students must take current,inflated prices into account whencomparing them against prices ofthe past.

Remind students that to calcu-late nominal versus real prices, theymust know four figures: the price inthe original year, the price today,the consumer price index in theoriginal year, and the consumerprice index today.

ASK: To receive a real 5 percentraise in a year with 3 percent infla-tion, what would the nominalraise need to be? 8 percent



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D ETERMINING AVERAGES: MEAN AND MEDIANTo calculate the mean, add all of the values and divide by the number of items. To figure outthe average cost of a bicycle in a local bike shop, for example, you would add the cost of allthe bicycles and then divide by the total number of bikes in the shop. Another useful statisticis the median. The median represents the midpoint of a sample. For example, if the medianprice of bicycles is $200, half of the bikes are more than $200 and half are less.

Directions: Examine the data presented in the table below and answer the questions that follow.

1. What is the average hourly wage? How did you calculate it?

2. What was the average number of hours worked by the five employees? How did you calculate it?

3. What was the median wage? How did you calculate it?

4. What was the median number of hours worked? How did you calculate it?

Name Date Class

5

Employee Hourly Wage Weekly Hours Worked

Brian Donnelly $6.95 12

Ron Nguyen $6.95 18

Robert Lee $7.25 30

Michele Lewis $7.45 22

Shaniqua Thompson $7.05 25


U NDERSTANDING REAL AND NOMINAL VALUESA house may have cost just $20,000 in 1960, but $20,000 then was worth a lot more than it istoday. To make an accurate comparison between the price of goods today and the price ofgoods in the past, you need to compare the real value of those goods, not the nominal value.Nominal values are values given in the currency at the time. To convert that value into a realvalue, you need to multiply it by the change in the overall price index.

Directions: The table below shows the consumer price index (CPI) for 1991–98. This index allows you toexpress all nominal values as real values. The time used as the index for the CPI is 1982–84. This means thatall nominal values can be expressed as real values in 1982–84 dollars. For example, the index for 1991 was136.2, or 1.362 times greater than the base index of 100 (136.2/100). This number indicates that goods in1991 cost 1.362 times as much as they did in 1982–84. To convert a 1991 nominal price into a real price, youwill need to divide the nominal price by this factor. The real value of a poster that cost $15.00 in 1991 isthus $11.01 ($15.00/1.362).

Consumer Price Index, 1991–98(1982 � 84 � 100)

Source: U.S. Department of Commerce (ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt)

1. What is the real cost of a watch that cost $45.00 in 1995?

2. How much did a movie that cost $7.50 in 1998 cost in 1982–84?

3. If the going rate for babysitting was $4.50 in 1996 and $5.50 in 1998, in which year did babysitters earn a higher real wage?

4. What was the real cost of a CD that cost $13.99 in 1998? If the nominal cost of the same CD was $12.99 in1993, in which year was the real cost lower?

1991 136.2

1992 140.3

1993 144.5

1994 148.2

1995 152.4

1996 156.9

1997 160.5

1998 163.0

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Name Date Class

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Year Index


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ANALYZING FINANCIAL INFORMATIONANALYZING FINANCIAL INFORMATION

A stock market report alphabetically lists stocks and provides information about stockprices and trades. Every business day, shares of stock are bought and sold. At the beginningof each trading day, stocks open at the same prices they closed at the day before. Prices gen-erally 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.

PRACTICING THE SKILL1. How many shares of Texas Instruments

stock were traded on the day shown?

2. What was the day’s highest price for ashare of Texas Utilities stock?

3. Which stock had the greatest increase inclosing price from the previous day?

Reading the Financial Page

LEARNING THE SKILLFollow these steps to learn how to understand and

use the financial page. Then answer the questions below.


If you had purchased 100 shares of Texas Instruments stock atits lowest 52-week price and sold it at this day’s closing price,how much money would you earn?

Economic Handbook

Stock Quotations

52 Weeks Yld Vol NetHi Lo Stock Sym Div % PE 100s Hi Lo Close Chg

1171⁄2 43 TxInstr TXN .17 .1 68 75019 1171⁄4 1111⁄8 1131⁄2 �33⁄4591⁄2 37 TexPacTr TPL .40 1.0 25 17 391⁄2 391⁄4 393⁄8 � 1⁄8465⁄16 323⁄4 TX Util TXU 2.40 6.7 11 13296 367⁄16 351⁄2 355⁄8 �13⁄16

2. Examine thestock’s historyover the last 52weeks. The highand low pricesfor one share ofstock appear.

4. Evaluate theannual dividend.Stockholdersreceive this divi-dend, or payment,for each share ofstock they own.

6. Read the price/earningsratio. Lower price/earningsratios generally mean moreearnings per share.

9. Examine how theday’s closing stockprice compareswith the prior busi-ness day’s closingprice. Positive num-bers indicate aprice increase.Negative numbersmean a price drop.

5. Review the yield.The yield is thereturn on invest-ment per share ofstock. It is calcu-lated by dividingthe dividend by theclosing price.

7. Note the vol-ume, or numberof shares ofstock, tradedthat day. Thenumber givenrepresents hun-dreds of shares.

1. Locate the stockin the alphabeti-cal list. Namesare abbreviated.

3. Note theticker symbol,or computercode, for thestock.

8. Examine the day’s high, low, andclosing stock price.

When you deposit money in a savings account, the bank pays you interest for the use ofyour money. The amount of interest is expressed as a percent, such as 6 percent, for a timeperiod, such as per year. Two types of interest exist: simple and compound. Simple interestis figured only on the principal, or original deposit, not on any interest earned. Compoundinterest is paid on the principal plus any interest that has been earned. Over time, there is a significant difference in earnings between simple and compound interest.

PRACTICING THE SKILL1. What would be the difference in earn-

ings between simple and compoundinterest if your initial balance was$1,000 rather than $100?

2. What would be the difference in earn-ings between simple and compoundinterest on your $100 savings after fiveyears?

Understanding Interest Rates


understand and calculate interest rates.Then answer the questions below.


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 youagree to keep in the bank for longer periods of time.Explain why this might be.

xxii

ANALYZING FINANCIAL INFORMATIONANALYZING FINANCIAL INFORMATION

Economic Handbook

Simple Interest6% � .06 $ 100 $100

� .06 � 6$6.00 6

$112

Compound Interest$ 100 $100 $ 106 $106.00� .06 � 6 � .06 � 6.36

$6.00 $106 $6.36 $112.36

3. Calculate the accountbalance for the first twoyears, assuming the bankpays the same interestrate each year. Add theprincipal, the first year’sinterest, and the secondyear’s interest.

2. To calculate the simpleinterest earned, multiplythe principal by theinterest rate.

1. Suppose you deposit $100 in a sav-ings account that earns 6 percentsimple interest per year. Get readyto figure your earnings by convert-ing 6 percent to a decimal.

7. Figure the total bankbalance after twoyears. Add the secondyear’s interest to thefirst year’s balance.

5. Find the bank balance for the end of the firstyear. Add the principal and first year’s interest.

4. Suppose you deposit $100in a savings account thatearns 6 percent com-pound interest per year.Calculate the interestearned the first year.

6. Determine the interestearned in the second year.Multiply the new balance bythe interest rate.

xxii



1. $3.602. $3.82

1. You would earn more interest.2. Answers will vary, but students should infer that the bank benefits by having longer

use of your money, so the bank is willing to pay more for that benefit.



1. 7,501,9002. $36.443. Texas Instruments

$7,050.00

UnderstandingInterest Rates

Use the following activity toguide students through the mathe-matics for calculating simple andcompound interest. Have studentsimagine that they have $100 todeposit in a savings account. Theycan place the money in an accountthat pays 5 percent compoundinterest or an account that pays6 percent simple interest.

Lead them through the steps ofcalculating the total savings peryear at 5 percent interest on $100compounded annually for eightyears: $105, $110.25, $115.76,$121.55, $127.63, $134.01,$140.71, $147.75.

Then guide students to calculatethat 6 percent simple interest overeight years would amount to $48,for a total savings of $148. Help students conclude that the firstaccount would be more profitablefor long-term savings, and the sec-ond would be more profitable forshort-term savings.

Reading theFinancial Page

Because so much information isprovided on page xxiii, it might beuseful to have students read aloudthe explanations for each entry. Toshow students how this format isused in the everyday financialworld, display the New York StockExchange (NYSE) list from a cur-rent newspaper. A stock marketreport from The Wall Street Journal,like the one shown here, provides acomplete listing of information.Your local newspaper, however,may delete some of the informationto save space.

Tell students that the NYSE hasapproved a plan to use decimalsrather than the centuries-old tradi-tion of quoting price changes infractions of a dollar. Most non-U.S.equities markets trade in decimals.According to the NYSE, the changewill take effect as soon as the secu-rities industry’s computer systemsare reprogrammed.



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U NDERSTANDING INTEREST RATESWhen you deposit money in a savings account, the bank pays you interest for the use of yourmoney. The amount of interest is expressed as an annual percent, such as 6 percent. Two typesof interest exist: simple interest and compound interest. Simple interest is calculated only onthe amount of money you deposit, known as the principal, not on any interest earned.Compound interest is paid on the principal plus any interest that has been earned.

Directions: Three years ago, you earned $2,000 working as a lifeguard. You deposited the money in a bankthat paid simple interest of 4.75 percent. One of the other lifeguards with whom you worked deposited the$2,000 she earned in a different bank. Her bank paid only 4.70 percent, but it compounded the interestannually.

1. How much money was in your account after the end of the first year?

2. How much money was in your friend’s account?

3. How much did each of you have in the bank after the end of the second year?

4. Why did your friend earn less in interest than you the first year but more in interest the second?

5. How much did each of you have in the bank after the end of the third year?

6. Which of you made the better long-term investment?

Name Date Class

7


Copyright ©

by The M

cGraw

-Hill C

ompanies, Inc.


R EADING THE FINANCIAL PAGETo find information about stock prices and trades, you can read the stock market report on thefinancial page of the newspaper. Every business day, shares of stock are bought and sold. Atthe beginning of each trading day, stocks are bought and sold at the same prices at whichthey closed the day before. At the end of the day, each stock’s closing price is recorded. Peopleread the financial page to follow the prices of stocks they own or are thinking of purchasingand to monitor the strength of the country’s business economy.

Directions: Study the stock market information below and answer the questions that follow.

Source: New York Times, October 28, 1999

1. At what price did BankOne shares close October 27, 1999?

2. What is the price/earnings (P/E) ratio of Bank of America?

3. What is the difference between the high and low values of a BankOne share on October 27?

4. What was the lowest price at which Bank of America shares traded in the previous 52 weeks?

5. What was the highest price at which BankOne shares traded in the previous 52 weeks?

6. How many shares of Bank of America were traded October 27?

Name Date Class

8

52-week Net Low Stock Div Yld P/E Sales High Low Last ChgHigh % 100s

63 9/16 32 1/16 BankOne 1.68 4.8 13 46648 35 3/8 33 15/16 35 15/16 �1 3/8

76 3/8 48 1/16 Bk of Am 1.80 2.9 15 55925 61 1/16 58 1/16 61 1/16 �2 3/4


Summarize• Describe the main idea and how the details support it.• Use your own words to explain what you have read.

Assess• What was the main idea?• Did the text clearly support the main idea?• Did you learn anything new from the material?• Can you use this new information in other school subjects or at home?• What other sources could you use to find more information about the topic?

Question• What is the main idea?• How do the photos, charts, graphs,

and maps support the main idea?

Connect• Think about people, places, and

events in your own life. Are there any similarities with those in yourtextbook?

• Can you relate the textbook informa-tion to other areas of your life?

Predict• Predict events or outcomes by using

clues and information that youalready know.

• Change your predictions as you readand gather new information.

Visualize• Pay careful attention to details and

descriptions.• Create graphic organizers to show

relationships that you find in theinformation.

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✔

LOOK FOR CLUES AS YOU READ

• Comparison-and-Contrast Sentences:

Look for clue words and phrases thatsignal comparison, such as similarly,just as, both, in common, also, andtoo.

Look for clue words and phrases thatsignal contrast, such as on the otherhand, in contrast to, however, differ-ent, instead of, rather than, but, andunlike.

• Cause-and-Effect Sentences:

Look for clue words and phrases suchas because, as a result, therefore, thatis why, since, so, for this reason, andconsequently.

• Chronological Sentences:

Look for clue words and phrases suchas after, before, first, next, last, during,finally, earlier, later, since, and then.

Reading for In format ion xxv

xxv

Think about your textbook as a tool that helps you learn more about the worldaround you. It is an example of nonfiction writing—it describes real-life events,people, ideas, and places. Here is a menu of reading strategies that will help youbecome a better textbook reader. As you come to passages in your textbook thatyou don’t understand, refer to these reading strategies for help.

Set a Purpose• Why are you reading the textbook?• How does the subject relate to your life?• How might you be able to use what you learn in your own life?

Preview• Read the chapter title to find what the topic will be.• Read the subtitles to see what you will learn about the topic.• Skim the photos, charts, graphs, or maps. How do they support the

topic?• Look for vocabulary words that are boldfaced. How are they defined?

Draw From Your Own Background• What have you read or heard about con-

cerning new information on the topic?• How is the new information different

from what you already know?• How will the information that

you already know help youunderstand the newinformation?

Reading for In format ionxxiv

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xxiv

11. Market Failures Market failures occur when there is inadequate competition, lack of access to reli-able information, resource immobility, externalities, and the need for public goods.

12. The Role of Government The role of government includes establishing a framework of law and orderin which a market economy functions. The government plays a direct and an indirect role in theeconomy as both a producer and a consumer of goods and services.

13. Gross Domestic Product Gross Domestic Product (GDP) is defined as the market value of the totaloutput of all final goods and services produced within a country’s boundaries during one year.

14. Aggregate Supply and Aggregate Demand Aggregate supply is the total amount of goods and ser-vices produced by the economy during a period of time. Aggregate demand is the total amount ofspending on goods and services in the economy during a period of time.

15. Unemployment Unemployment is defined as the number of people without jobs who are activelyseeking work. This is also expressed as a rate when the number of unemployed is divided by thenumber of people in the labor force.

16. Inflation and Deflation Inflation is a sustained increase in the average price level of the entire econ-omy. Deflation is a sustained decrease in the average price level of an entire economy.

17. Monetary Policy Monetary policy consists of actions initiated by a nation’s central bank that affectthe amount of money available in the economy and its cost (interest rates).

18. Fiscal Policy Fiscal policy consists of changes in taxes, in government expenditures on goods andservices, and in transfer payments that are designed to affect the level of aggregate demand in theeconomy.

19. Absolute and Comparative Advantage and Barriers to Trade Absolute advantage and comparativeadvantage are concepts that are used to explain why trade takes place. Barriers to trade include tar-iffs, quotas, import licenses, and cartels.

20. Exchange Rates and the Balance of Payments An exchange rate is the price of one nation’s cur-rency in terms of another nation’s currency. The balance of payments of a country is a statisticalaccounting that records, for a given period, all payments that the residents, businesses, and gov-ernments of one country make to the rest of the world as well as the receipts that they receivefrom the rest of the world.

21. International Aspects of Growth and Stability International aspects of growth and stability are moreimportant today than in the past because all nations are much more interdependent.

xxviiBasic Concepts in Economics

xxvii

Economics Today and Tomorrow incorporates the 21 basic concepts established in A Framework forTeaching Basic Economic Concepts, published by the National Council on Economic Education.

1. Scarcity and Choice Scarcity is the universal problem that faces all societies because there are notenough resources to produce everything people want. Scarcity requires people to make choicesabout the goods and services they use.

2. Opportunity Cost and Trade-Offs Opportunity cost is the foregone benefit of the next best alterna-tive when scarce resources are used for one purpose rather than another. Trade-offs involve choos-ing less of one thing to get more of something else.

3. Productivity Productivity is a measure of the amount of output (goods and services) produced perunit of input (productive resources) used.

4. Economic Systems Economic systems are the ways in which people organize economic life to dealwith the basic economic problem of scarcity.

5. Economic Institutions and Incentives Economic institutions include households and families andformal organizations such as corporations, government agencies, banks, labor unions, and coop-eratives. Incentives are factors that motivate and influence human behavior.

6. Exchange, Money, and Interdependence Exchange is a voluntary transaction between buyers andsellers. It is the trading of a good or service for another good or service, or for money. Money isanything that is generally accepted as final payment for goods and services, and thus serves as amedium of exchange. Interdependence means that decisions or events in one part of the world or inone sector of the economy affect decisions and events in other parts of the world or sectors ofthe economy.

7. Markets and Prices Markets are arrangements that enable buyers and sellers to exchange goods and services. Prices are the amounts of money that people pay for a unit of a particular good orservice.

8. Supply and Demand Supply is defined as the different quantities of a resource, good, or service thatwill be offered for sale at various possible prices during a specific time period. Demand is definedas the different quantities of a resource, good, or service that will be purchased at various possibleprices during a specific time period.

9. Competition and Market Structure Competition is the struggle between businesses that strive forthe same customer or market. Competition depends on market structure—the number of buyersand sellers, the extent to which firms can control price, the nature of the product, the accuracyand timeliness of information, and the ease with which firms can enter and exit the market.

10. Income Distribution Income distribution refers to the way the nation’s income is distributed byfunction—to those who provide productive resources—and by recipient, primarily individuals andfamilies.

Basic Concepts in Economicsxxvi

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