### Unit 1: Topic 8: How inflation and interest rates impact on personal finance

Teacher: Mrs Rennie Student: ...................

How inflation and interest rates impact on personal finance

 1 Annual equivalent rate (AER) _____ the situation in which an asset or money decreases in value. 2 Annual percentage rate (APR) _____ the interest paid on savings after income tax has been taken off. 3 Asset _____ interest that is calculated on the principal plus the interest that has been charged or paid so far. 4 Bank rate _____ anything that a person owns that has a monetary value, such as a house, car, stereo, jewellery and so on. 5 Basket of goods _____ a savings account on which interest is paid tax-free and about which there are rules, including limits on how much money you can save. 6 Compound interest _____ how much money you can make on savings or investments, or how much money you get back (ie your profit) compared with the amount that you put in. 7 Consumer Prices Index (CPI) _____ the words used after percentage rates to mean ‘each year’. 8 Cost of living _____ interest that is calculated only on the principal (or what is left of it). 9 Cost-push inflation _____ the amount of interest that someone can earn on their savings tax-free in a tax year. ISA interest is always tax-free. 10 Demand-pull inflation _____ the representative items that a household buys over a period of time on which inflation calculations are based. 11 Depreciation _____ money that is paid to a person after they retire, paid either from the government or from personal savings, or a combination of both. 12 Equivalent annual rate (EAR) _____ a charge made or paid for the use of someone else’s money. 13 Fixed rate _____ the interest that would be charged on a sum borrowed over one full year; used to measure the interest rate on loans, mortgages and credit cards; the calculation includes the fees that lenders charge automatically on the product, so that it gives a clear picture of the cost. 14 Gross interest _____ the official interest rate as set by the Bank of England. 15 Household _____ the interest that would be charged on an overdraft if you were to borrow the money for a full year. 16 Hyperinflation _____ a government benefit that assists older people in paying for their heating bills. 17 Individual savings account (ISA) _____ all of the people living in a single residence. 18 Inflation _____ the interest paid on savings before income tax has been taken off. 19 Interest _____ the original amount of money put into something or taken as debt. 20 Net interest _____ one of the main measures of inflation, calculated monthly by measuring the average cost of a ‘basket’ of goods less major household expenditure, such as mortgages and council tax. 21 Nominal interest rate _____ an interest rate that follows Bank rate plus whatever charges the bank sets. 22 Pension _____ the amount that you need to spend to buy the goods and services necessary for living an average life. 23 Per annum _____ the amount of interest that you pay after taking inflation rates into account, eg if the interest rate is 5%, but prices have risen 10%, then the real interest rate is 5% (5% - 10%). 24 Personal savings allowance _____ the interest rate as stated before taking inflation into account. 25 Principal (or capital) _____ inflation that is driven by the numbers of people who want a particular item or service. 26 Rate of return _____ the increase in prices over time, as measured by how much a typical ‘basket’ of goods costs. 27 Real interest _____ very high inflation. 28 Simple interest _____ an interest rate that is set at a particular amount for a particular period of time and does not change for that period. 29 Variable rate _____ the interest rate that would be paid on a savings account if you were to leave the money in the account for a full year. 30 Winter Fuel Payment _____ inflation that is driven by higher costs of production.

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