3E Economics par. 7.1

• Economie
• Middelbare school
• vwo
• Leerjaar 3

New car

My car broke down and I need to buy a new one. At the car dealer I see a car for € 12.000,-.

The car dealer tells me that I can drive the car for only € 160,-

Shall I take the deal?

                                                                                                       ( p.m for 8 y. )                                                                               

Interest

Total payments = 96 x 160 = € 15.360,-

Original price = € 12.000,-

Paid interest = € 3.360,-

If I don't have enough money on my savings acoount I'm happy that the deal exists. Because otherwise I wouldn't be able to drive the car.

But time is money: I have to pay extra ( interest ) to be able to consume the car earlier

Motives for saving / borrowing

- Expensive purchase 

- Financial setbacks

Saving <------------> Borrowing

Receiving interest                      Paying interest     

I put € 1.000,- on my savings account and the interest rate is 10%.
How much will be on my savings account after 2 years?

1. 1.100,-
2. 1.200,-
3. 1.210,-

After 1 year

1.000 x 1,10 = 1.100,-

After 2 years

1.100 x 1,10 = 1.210,-

Nominal interest rate indicates the change of the amount of money on my savings

Real interest rate considers the effect of inflation

Real interest rate indicates the change of the purchasing power of my savings

If inflation is higher than the nominal interest rate the real interest rate is ...(1) and the purchasing power of savings will ...(2)

1. 1 negative 2 decrease
2. 1 negative 2 increase
3. 1 positive 2 decrease
4. 1 positive 2 increase

I have to pay a fee of € 300,- before the 31st of December. They offer me a discount if I pay on the 1st of January. Then I would only have to pay € 290,-
The current interest rate is 4%

1. Take the discount
2. Don't take the discount

If I put the € 290,- on my bank account on the 1st of January

290 x 1,04 = 301,6

I would be able to pay the fee on the 31st of December easily and have some money extra

So don't take the deal

Fee of € 300,- on the 31st of December
Interest rate is 4%
What would be the highest amount you would be willing to pay on the 1st of January?

1. 287,90
2. 288,10
3. 288,40
4. 288,50

300 / 1,04 = 288,46

So 288,46 on January 1st is the same as 300 on December 31st

Hw.

 Next lesson: Par. 7.1 assignments 8

Assignments from the paragraphs:

Par. 7.1 assignments 1, 2, 3, 7, 9, 12, 13, 14, 15, 16, 17