This section is a lot of vocabulary.
Assets vs. Liabilities
- asset – something you OWN
- liability – something you OWE
My students get those two confused. Learning this early on will help with bank balance sheets later.
Stocks vs. Bonds
The next thing to clarify is the difference between stocks (equities) and bonds (securities). When you buy stocks, you have partial ownership in that company. When you buy bonds, you are loaning money to that organization with no ownership.
The Relationship Between Interest Rates and Bond Prices
Make sure students know that bond prices and interest rates are inversely related. This is for bonds that can be bought and sold in the bond market. The idea is pretty simple. Let’s say I have a $1,000 bond that I purchased with an interest rate at 8%. Since that time the interest rate has dropped to 5%. If you were looking to buy a $1,000 bond now, would you buy the bond with 5% interest rate or pay a little bit more (maybe $1,100) to buy my bond with an 8% interest rate? You would want the higher interest rate. Now, of course, time plays into this equation but the Time Value of Money is no longer a required a topic for AP Macro. So students need to know that if the interest rates go down, the price of a previously issued bond (with a higher interest rate) goes up. If the interest rates go up, the price of a previously issued bond (with a lower interest rate) goes down.
AP Macro 4.1 Notes
Do you need something for your students to take notes on? Here are some Cornell Notes formatted with all of the terms students need to know from section 4.1. You can print them out and hand them hard copies, or you can have students fill them out digitally in Google Slides. You can also download them from Google Slides into Microsoft PowerPoint and have student fill them out in that application.
Best wishes in your 4.1 endeavors!