Students will be able to use this knowledge to: Describe the roles of various economic institutions.
Institutions play a number of roles in a market economy. Property rights help insure that people bear the costs and reap the benefits of their decisions. Property rights and contract enforcement encourage investment by assuring investors that they will reap the rewards of deferring consumption and assuming risk if these investments perform well. Limiting individual liability and allowing people to pool their investment resources through joint stock corporations also increases investment and future income.
Other institutions lower the costs buyers and sellers incur in their efforts to find each other in different kinds of markets. For example, banks match savers with borrowers; and investment banks match entrepreneurs who organize new firms with investors who provide the needed funds.
Many institutions work to promote the goals of certain interest groups. Labor union, for example, increase the negotiating power of workers in their dealings with employers.
Understanding economic institutions and the purposes they serve will help students use institutions more effectively and help them evaluate proposed new institutions or changes in the existing legal and institutional environment.
You can find additional online lessons on US Standard 10 from the Council for Economic Education Website.
At the 4th grade level, the primary focus is for students to understand the concept of saving. Students should know how people save money, where people can save money, and why people save money, as well as the concept of interest. At the 8th grade level, the focus turns to the role that financial institutions play as intermediaries between savers and borrowers as well as the role government agencies such as the Federal Deposit Insurance Corporation (FDIC) play in protecting savings deposits. The role of markets in determining interest rates is introduced. Finally, the mathematics of saving is covered, including the power of compound interest. All of this is framed around the choices people make about how much to save. At the 12th grade level, more complex concepts are introduced, such as real versus nominal interest rates, present versus future value, financial regulators, the factors determining the value of a persons savings over time, automatic savings plans, rainy-day funds, and saving for retirement.
At the 4th grade level, students should understand the concept of credit and the cost of using creditnamely, the obligation to repay what is borrowed plus interest on the amount borrowed. Students should recognize that a reputation for repaying loans contributes to a persons ability to obtain loans in the future. At the 8th grade level, attention turns to why people use credit, the sources of credit, why interest rates vary across borrowers, and the reasons for using credit to invest in education and durable goods. Students should be able to make basic calculations related to borrowing, including principal and interest payments as well as compound interest. At the 12th grade level, the focus is on credit reports, credit scores, behaviors that contribute to strong credit reports and scores, and the impact of credit reports and scores on consumers. Consumer protection laws as they apply to credit and credit card use are also covered.