Assignment Example on Essentials of Economics

Paper Type:  Essay
Pages:  4
Wordcount:  872 Words
Date:  2022-06-19

Explain the Role of Personal Credit in the Market Economy

Personal credit is the money advanced to an individual for personal use by a bank or non-banking financial organization to meet personal needs based on the character of the person seeking credit. Personal credit is advanced on a borrower based on their repayment history, income, and credit history. Personal credit plays a significant role in the market economy and cannot be ignored as an economic stimulator (Durkin, Thomas, Gregory Elliehausen, and Todd J. Zywicki 279). Financial resources in the economy enable people to have greater buying power which leads to an increase in production and price of goods and services. Personal credits enable consumers to be able to consume more goods in the market economy which can stimulate economic growth. However, personal credit increases borrowing and can have a negative impact on the market economy because of its ability to increase inflation (Brue, Stanley et al. 2010, 45).

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Explain How to Avoid of the Personal Credit

Disciplined Spending

Heavy spending is a significant source of increased borrowing due to poor financial management practices. An individual can avoid the unwanted consequences that come with personal loans through proper personal budgeting which can improve financial management and avoid the need for external borrowing to spend on personal utilities. Disciplined spending involves avoiding impulse buying which leads to the purchase of unnecessary things that forces an individual to borrow to buy what is necessary (Verhelst, Brianna Dawn 66).

Savings and Insurance

Savings is the process of accumulating money for the long term and short term necessities and helps to avoid the necessity of borrowing. Saving is an important approach that ensures financial freedom and satisfaction by ensuring that all necessities are accounted for and budgeted for the regular income. On the other hand, taking personal and property insurance is also an important approach through which one can avoid personal loans to meet expenses such as healthcare, vehicle repair and property replacement. Insurance provides security against any unforeseen spending depending on what one is insured against (Verhelst, Brianna Dawn 93).

Explain the Role of Different Types of Insurance in the Market Economy

Insurance is a contract between the insured and the insurer in which the insurer provides indemnity to the insured against losses from accidents and other unforeseen occurrences. Different types of insurance covers have different roles in the market economy (Liedtke, Patrick 211).

Life Insurance

Life insurance is a type of insurance that protects people who depends on the insured. Life insurance provides a cover to the dependants which play a significant role in ensuring financial stability. The role of life insurance in the market economy is ensuring the continuity of families which promotes sustained spending to meet the family needs.

Health Insurance

Health insurance is an insurance cover that provides financial protection against any unforeseen health problem. Health insurance has a significant role in the market economy because it cushions people against healthcare spending. Without health insurance, one can be forced to take loans to meet health expenses which reduces spending and stagnates economic growth. Through health insurance, people can lead healthy lives which promotes their participation in economic activities.

Property Insurance Property plays a significant role in the overall performance of the economy. Many businesses face continuous risks of fire and theft which could negatively affect the economy by reducing income and employment in case of an accident. Property insurance ensures business continuity which is very important in the market economy by ensuring growth (Stojakovic, Aleksandra, and Ljiljana Jeremic 89).

Explain the Fundamental of investing pros and cons

Pros of Investing

Encourages Proper Spending Habits

Investing is an important approach through which individuals can increase positive spending habits that promotes positive personal growth and discipline. Spending without investment denies an individual future source of income and threatens one's financial stability.

Potential Long-Term Returns

Investments are a source of long-term returns in interests and profits which increases an individual net worth. Investment ensures financial growth which makes it easy for an individual to meet their future financial needs.

Cons of Investing

The Risk of Losses

Bad investments pose a significant threat to potential investment due to the risk of losing everything that one invests in a business. For instance, investing shares can be dangerous in case of poor financial performance within the market.

Investing Reduces Consumption

Investing money reduces the overall amount of money that is available for spending and reduces the ability to meet an individual potential needs that are foregone (Wagland, Suzanne P., and Sharon Taylor 3).

Works Cited

Brue, Stanley L., et al. Essentials of economics. McGraw-Hill Irwin, 2010.

Durkin, Thomas A., Gregory Elliehausen, and Todd J. Zywicki. "Consumer Credit and the American Economy: An Overview." JL Econ. & Pol'y 11 (2015): 279.

Liedtke, Patrick M. "What's insurance to a modern economy?." The Geneva Papers on Risk and Insurance-Issues and Practice 32.2 (2007): 211-221.

Stojakovic, Aleksandra, and Ljiljana Jeremic. "Development of the insurance sector and economic growth in countries in transition." Megatrend revija 13.3 (2016): 83-106.

Verhelst, Brianna Dawn. The Systemic Nature of Personal Debt: A Critical Realist Approach to Analyses and Solutions. Diss. Faculty of Graduate Studies and Research, University of Regina, 2016. 50-100

Wagland, Suzanne P., and Sharon Taylor. "When it comes to financial literacy, is gender really an issue?." Australasian Accounting, Business and Finance Journal 3.1 (2009): 3.

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