Standards 11-15

Content Standard 11

Students will understand that: Students will be able to use this knowledge to:
Money makes it easier to trade, borrow, save, invest, and compare the value of goods and services. Explain how their lives would be more difficult in a world with no money or in a world where money sharply lost its value.

Most people would like to have more money. Students, however, often fail to understand that the real value of money is determined by the goods and services money can buy. Doubling the amount of money in an economy overnight would not, by itself, make people better off, because there would still be the same amount of goods and services produced and consumed, only at higher prices. Money is important to an economy, however, because as it replaces barter it makes exchange less costly. As a result, people are more likely to specialize in what they produce, using money to buy what they want to consume, thus increasing overall levels of production and consumption in a nation.

Understanding what determines the real buying power of money and earnings will help students make better decisions about their jobs and spending. Understanding the importance of money to society will also help them make informed decisions about national policies related to banking, controlling the supply of money, and inflation.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Money is anything widely accepted as final payment for goods and services. 1. Identify things that have been used as money at different times and in different societies. Explain why some things can be used effectively for money and some things cannot.
2. Money makes trading easier by replacing barter with transactions involving currency, coins, or checks. 2. List five goods and services they desire and describe ways of obtaining these goods and services without using money. Then explain why using money makes it easier to get the same five items.
3. People consume goods and services, not money; money is useful primarily because it can be used to buy goods and services. 3. Decide whether they would rather have a suitcase full of money or one full of food when stranded on a deserted island, and explain their answer.
4. Producers use natural resources, human resources, and capital goods (not money) to make goods and services. 4. Explain why, when given money, they are unable to produce paper weights to sell at the forthcoming school craft fair unless they exchange the money for productive resources.
5. Most countries create their own currency for use as money. 5. Identify the currencies they would want to buy if they were going on a trip to Brazil, France, Romania, Vietnam, Australia, Japan, and Kenya.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. As a store of value, money makes it easier for people to save and defer consumption until the future. 1. Demonstrate their understanding of money as a store of value in responding to the following: A tomato farmer wants to save money for his five-year old daughter’s college education. Why is he better off selling his tomatoes for money and saving the money than he would be if he saved tomatoes to exchange for his daughter’s tuition when she reached age 18?
2. As a unit of account, money is used to compare the market value of different goods and services. 2. Explain how they can use relative prices to compare the value of three different fruits.
3. Money encourages specialization by decreasing the costs of exchange. 3. Explain how life might change for Dr. Hart, who specializes as a cardiologist, and for others in the community, if our society became a barter economy.
At the completion of Grade 12, students will know the Grade 4 and 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. The basic money supply in the United States consists of currency, coins, and checking account deposits. 1. Select examples of money from a collection of pictures that show coins, currency, checks, savings account passbooks, ATM cards, and various types of credit cards and explain whether each is considered money.
2. In many economies, when banks make loans, the money supply increases; when loans are paid off, the money supply decreases. 2. Demonstrate how successive deposits and loans by commercial banks, resulting from one new deposit in the banking system, cause the money supply to expand and how repayment of loans causes the money supply to contract.

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Content Standard 12

Students will understand that: Students will be able to use this knowledge to:
Interest rates, adjusted for inflation, rise and fall to balance the amount saved with the amount borrowed, thus affecting the allocation of scarce resources between present and future uses. Explain situations in which they pay or receive interest, and explain how they would react to changes in interest rates if they were making or receiving interest payments.

Interest rates influence the borrowing and saving of business investors, consumers, and government agencies. Most people are unfamiliar with interest rates until they borrow money for a major purchase such as an automobile, college education, or a house. When they enter the market for credit they encounter an unfamiliar price (the interest rate) offered by an unfamiliar business (a financial institution). It is necessary for students to understand that interest rates are determined by market forces that balance savings and borrowing. For many people, interest rates can represent significant financial costs and significant financial benefits over a lifetime.

It is also important for students to understand the incentive effects of interest rates. Interest payments compensate savers for postponing current consumption; they compensate lenders for the risk that borrowers might default on their loans; and they cover the cost of expected inflation over the term of the loan.

Benchmarks

At the completion of Grade 12, students will know that: At the completion of Grade 12, students will use this knowledge to:
1. An interest rate is a price of money that is borrowed or saved. 1. Identify the current rates of interest on different kinds of savings instruments and different kinds of loans.
2. Like other prices, interest rates are determined by the forces of supply and demand. 2. Determine the interest rates on 30-year fixed-rate conventional home mortgages over the last 15 years and explain why they rose and fell.
3. The real interest rate is the nominal or current market interest rate minus the expected rate of inflation. 3. Collect data on the rate of inflation and interest rates for various kinds of loans and savings instruments over the past 15 years. Discuss the relationship between the observed inflation rates and expected rates of inflation in any given year. Using this information, estimate the real rate of interest in these different years.
4. Higher real interest rates provide incentives for people to save more and to borrow less. Lower real interest rates provide incentives for people save less and to borrow more. 4. Collect data on interest rates, the rate of inflation, and new housing starts over the past 25 years. State how changes in real interest rates affect people’s decisions to borrow in order to buy a house.
5. Real interest rates normally are positive because people must be compensated for deferring the use of resources from the present into the future. 5. Explain why people who save money receive interest payments while people who borrow money make interest payments.
6. Riskier loans command higher interest rates than safer loans because of the greater chance of default on the repayment of risky loans. 6. Explain why there are usually differences in interest rates for new and used-car loans, for 15-year versus 30-year mortgages, and for individuals with good and bad credit ratings.
7. Higher interest rates reduce business investment spending and consumer spending on housing, cars, and other major purchases. Policies that raise interest rates can be used to reduce these kinds of spending, while policies that decrease interest rates can be used to increase these kinds of spending. 7. Identify periods over the past 10 years when the Federal Reserve System tried to increase interest rates in order to reduce business, investment, and consumer spending.

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Content Standard 13

Students will understand that: Students will be able to use this knowledge to:
Income for most people is determined by the market value of the productive resources they sell. What workers earn depends, primarily, on the market value of what they produce and how productive they are. Predict future earnings based on their current plans for education, training, and career options.

In a market economy, wages and salaries–the prices of labor services–are determined just as other prices are, by the interaction of buyers and sellers. The buyers of labor services are employers. They are willing to pay higher wages and salaries to employees who can produce more or better goods or services in a given amount of time. Students who understand this will appreciate the value of the skills they can acquire by completing high school, and perhaps college or a vocational training program.

Understanding the forces affecting wages and other sources of income will be increasingly important in the future, when workers may change employers and careers more often than in the past. Regardless of the occupations or industries in which today’s students eventually work, they are likely to find that they will have to continue their education and training to maintain or increase their earnings.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Labor is a human resource used to produce goods and services. 1. Identify human resources in their community and the goods and services they produce.
2. People can earn income by exchanging their human resources (physical or mental work) for wages or salaries. 2. Collect data from adults regarding their reasons for working, analyze the data, and generalize about why people work.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. Employers are willing to pay wages and salaries to workers because they expect to sell the goods and services those workers produce at prices high enough to cover the wages and salaries and all other costs of production. 1. Ask owners of fast-food restaurants why they are willing to pay a wage or salary to workers and conclude that restaurant owners do so because they expect to sell the food and services produced at a price high enough to cover the wages, salaries, and all other costs of production.
2. To earn income, people sell productive resources. These include their labor, capital, natural resources, and entrepreneurial talents. 2. Survey several adults regarding their sources of income, and conclude that the largest portion of personal income for most people comes from wages and salaries.
3. A wage or salary is the price of labor; it usually is determined by the supply of and demand for labor. 3. Participate in a market simulation as employers and employees to determine wage rates for labor.
4. More productive workers are likely to be of greater value to employers and earn higher wages than less productive workers. 4. Decide which workers to hire and explain the hiring decisions, given a list of job applicants with different levels of productivity.
5. People’s incomes, in part, reflect choices they have made about education, training, skill development, and careers. People with few skills are more likely to be poor. 5. Consider a career choice; research the amount of education required and the median income for this career. Identify reasons why high school dropouts frequently earn low incomes.
At the completion of Grade 12, students will know the Grade 4 and 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Changes in the structure of the economy, the level of gross domestic product, technology, government policies, and discrimination can influence personal income. 1. Review income data for jobs in manufacturing and service industries over the last 25 years. Explain how changes in the structure of the economy, gross domestic product, technology, government, prices, and discrimination have influenced income for jobs in these two areas.
2. In a labor market, in the absence of other changes, if wage or salary payments increase, workers will increase the quantity of labor they supply and firms will decrease the quantity of labor they demand. 2. Explain the impact of an increase in the minimum wage on their ability to secure an after-school job; also explain the impact of the increase on their willingness to work.
3. Changes in the prices for productive resources affect the incomes of the owners of those productive resources and the combination of those resources used by firms. 3. Construct a flow chart to show how a change in a resource price affects producers and workers in a particular production process.
4. Changes in demand for specific goods and services often affect the incomes of the workers who make those goods and services. 4. List three careers that are expected to provide many new job openings and explain why. List three careers that are expected to experience a decline in job openings and explain why.
5. Two methods for classifying how income is distributed in a nation–the personal distribution of income and the functional distribution–reflect, respectively, the distribution of income among different groups of households and the distribution of income among different businesses and occupations in the economy. 5. Identify the major changes in the functional distribution of income in the United States between the 1780s and the 1990s. Also, determine whether there have been significant changes in the personal income distribution in the United States over the past 50 years.

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Content Standard 14

Students will understand that: Students will be able to use this knowledge to:
Entrepreneurs are people who take the risks of organizing productive resources to make goods and services. Profit is an important incentive that leads entrepreneurs to accept the risks of business failure. Identify the risks, returns, and other characteristics of entrepreneurship that bear on its attractiveness as a career.

Starting a new business, such as a “drive thru” that sells fruit-freezes, is difficult and risky. Challenges abound: hiring and managing the workers to make and serve the freezes, ordering supplies and making sure they arrive on time, giving prompt and courteous service so customers will return, and earning enough money to pay workers, taxes, suppliers, and everyone else involved in the production and sales process, while still leaving something for the owner.

Spending money and using resources to supply a product is risky, because costs are incurred before consumers decide whether they will purchase the product at a price sufficiently high to cover the costs. Starting a new business or producing an entirely new product is especially risky because in the case of a new product producers know even less about how consumers will react. Entrepreneurs accept the risks and organize productive resources to get products produced. Profits are the financial incentive and the income that entrepreneurs receive in return for their effort and risk–if they are successful. If they are not successful, losses are the financial incentives that tell entrepreneurs to stop using resources as they have been using them.

Understanding the roles of entrepreneurs, profits, and losses is important to workers, business owners, and consumers. Wages and employment opportunities at a business depend on the business’ success in earning profits and avoiding losses. Similarly, public policies that affect the profitability of a business will influence not only the owners and employees of the business, but also the consumers who buy the products produced by the business.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Entrepreneurs are individuals who are willing to take risks in order to develop new products and start new businesses. They recognize opportunities, enjoy working for themselves, and accept challenges. 1. Read a children’s book about an entrepreneur. Identify the main character’s entrepreneurial characteristics and compare their own entrepreneurial characteristics with those of the main character.
2. An invention is a new product. Innovation is the introduction of an invention into a use that has economic value. 2. Identify three examples of inventions and three examples of innovations.
3. Entrepreneurs often are innovative. They attempt to solve problems by developing and marketing new or improved products. 3. Solve a problem by creating a new use for an existing product such as a wire coat hanger, thimble, or shoulder pad. Also, develop an advertising campaign for their new product.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. Entrepreneurs compare the expected benefits of entering a new enterprise with the expected costs. 1. Read short biographies of various entrepreneurs and identify the risks each entrepreneur faced and the entrepreneur’s incentive(s) for accepting the risk.
2. Entrepreneurs accept the risks in organizing resources to produce goods and services, and they hope to earn profits. 2. Interview an entrepreneur to learn why he or she was willing to start a new business.
3. Entrepreneurs and other sellers earn profits when buyers purchase the products they sell at prices high enough to cover the costs of production. 3. Analyze simple profit and loss statements and conclude that entrepreneurs or other sellers earn profits when their total revenues exceed their total costs.
4. Entrepreneurs and other sellers incur losses when buyers do not purchase the products they sell at prices high enough to cover the costs of production. 4. Identify a restaurant that went out of business and give reasons why this might have occurred.
5. In addition to profits, entrepreneurs respond to other incentives including the opportunity to be their own boss, the chance to achieve recognition, and the satisfaction of creating new products or improving existing ones. In addition to financial losses, other disincentives to which entrepreneurs respond include the responsibility, long hours, and stress of running a business. 5. Read short biographies of several entrepreneurs, list the pertinent characteristics of each entrepreneur, and make a generalization about the non-financial incentives that motivate entrepreneurs and the risks or disincentives entrepreneurs face.
At the completion of Grade 12, students will know the Grade 4 and 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Entrepreneurial decisions affect job opportunities for other workers. 1. Identify an entrepreneur and describe how the entrepreneur’s decisions affect job opportunities.
2. Entrepreneurial decisions are influenced by government tax and regulatory policies. 2. Explain how entrepreneurial activity is affected by a tax policy that affects income from profits and capital investment.

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Content Standard 15

Students will understand that: Students will be able to use this knowledge to:
Investment in factories, machinery, new technology, and the health, education, and training of people can raise future standards of living. Predict the consequences of investment decisions made by individuals, businesses, and governments.

Students should recognize that by saving and investing money today they can benefit in the future by being able to buy such things as a car, a compact disc player, a trip to an amusement park, or other things that cost more than they can afford immediately. They will face similar trade-offs throughout their lives. As adults they will save for many things other than toys and vacations–including housing, medical expenses, taxes, household and automobile repairs, their children’s education, and their own retirement. Savings deposited in banks and other financial institutions earn interest because those savings are loaned to businesses that want to invest in capital goods, or to people who are willing to pay higher interest rates to purchase homes, cars, or other things now rather than later. The new physical capital will, in turn, increase production and promote faster economic growth.

Businesses, governments, and other organizations face decisions similar to those confronting individuals: future benefits that arise from saving and investing today make it worthwhile to sacrifice some current spending. Knowing this will help students understand the various investment and dividend programs adopted by different corporations, as well as public policies involving taxation, spending programs, and investment in infrastructure, education, and other things that will increase future standards of living. It will help them appreciate that a better life in the future often requires patience and sacrifice in the present. It also will help them understand the importance of personal investment in education and training, and of business investments.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. When workers learn and practice new skills they are improving their human capital. 1. Explain why professional athletes often have training equipment in their homes.
2. Workers can improve their productivity by improving their human capital. 2. Make a pressman’s hat out of newspaper with no instructions, record how much time it took them to make the hat, and discuss the quality of the finished product. After receiving instruction on how to make the hat, and given time to practice, repeat the activity, record how long it takes to make the hat, and compare the quality of the hats produced with and without instructions and practice.
3. Workers can improve their productivity by using physical capital such as tools and machinery. 3. Complete a basic math worksheet using pencil and paper in a given amount of time; correct the work and record the number of problems completed and the number of correct answers. Repeat the activity, using calculators; correct the work, record the number of problems completed and the number of correct answers, and explain the difference in results.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. Standards of living increase as the productivity of labor improves. 1. Analyze data on labor productivity and standards of living. Draw a generalization about the relationship between the two. Also, tell how the living standards of their families would probably change if the productivity of every worker in the United States were to increase by 20 percent.
2. Productivity is measured by dividing output (goods and services) by the number of inputs used to produce the output. A change in productivity is a change in output relative to input. 2. Participate in a simulated production process in which they calculate productivity and analyze changes that occur through investment in human capital and capital goods.
3. Technological change is an advance in knowledge leading to new and improved goods and services and better ways of producing them. 3. Create a timeline showing at least five new products that have been developed over the last 25 years. Also, explain how technological change led to these new or improved products.
4. Increases in productivity result from advances in technology and other sources. 4. Study data about technological development and labor productivity for the last 25 years in the United States, India, Haiti, and Germany. Generalize about the relationship between technological change and changes in productivity from the data.
At the completion of Grade 12, students will know the Grade 4 and 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Economic growth is a sustained rise in a nation’s production of goods and services. It results from investments in human and physical capital, research and development, technological change, and improved institutional arrangements and incentives. 1. Analyze per capita real GDP data for several periods in history, identifying periods during which the United States experienced rapid economic growth; identify the factors that contributed to this growth.
2. Historically, economic growth has been the primary vehicle for alleviating poverty and raising standards of living. 2. Compare the material standard of living of individuals living in the United States in 1790, 1890, and 1990; explain the relationship between higher productivity levels, new technologies, and the standard of living.
3. Economic growth creates new employment and profit opportunities in some industries, but growth reduces opportunities in others. 3. Tell how growth in the computer industry affects employment and profit opportunities in the computer industry and in the typewriter industry.
4. Investments in physical and human capital can increase productivity, but such investments entail opportunity costs and economic risks. 4. Engage in a simulated production activity involving investment in human capital and capital goods and identify the effect on productivity as well as the opportunity costs and economic risks.
5. Investing in new physical or human capital involves a trade-off of lower current consumption in anticipation of greater future production and consumption. 5. Discuss the advantages and disadvantages of investing in a riding mower, given the following information: A teenager mows lawns to earn income. If she purchases a riding mower, she can mow more lawns in less time and possibly earn more income.
6. Higher interest rates discourage investment. 6. Explain why the purchase of an old car to use for delivering pizzas is less attractive when interest rates are higher.
7. The rate of productivity increase in an economy is strongly affected by the incentives that reward successful innovation and investments (in research and development, and in physical and human capital). 7. Explain how copyrights in the popular music industry and patents in the pharmaceutical industry affect the rate of productivity in each industry.

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