APMacro: Managing Risk

risk-management-and-insurance

The decision to buy insurance depends on individual judgment about the future. The general guideline is not to allow a large portion of potential loss to remain uninsured. To illustrate some of the risks associated with choosing or refusing to purchase insurance, the class will participate in the big risk simulation activity. Students are to imagine that they have just graduated from high school. They own a number of assets that they are thinking of insuring, including an automobile, inherited jewelry, a rare coin set, and the contents of their rented apartment. Their employer provides a health insurance plan they can purchase. Students will examine the possible risks and dollar costs of insuring various things they would like to insure. They may not spend more than $2,900; they may spend less. Students will not be able to insure all items.

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Gov: Federal Bureaucracy

Bureaucratic Agency1 The federal bureaucracy is organized into departments, agencies, boards, commissions, corporations, and advisory committees. The 15 cabinet departments include the Departments of State, Defense, Treasury, Interior, Agriculture, Justice, Commerce, Labor, Housing and Urban Development, Transportation, Energy, Health and Human Services, Education, Veterans Affairs, and Homeland Security. The president appoints each department’s secretary, undersecretary, and assistant secretaries. Each department has bureaus or agencies within it. The federal bureaucracy also includes more than 100 independent organizations that are not part of the departments. Examples of independent agencies include the Social Security Administration, the National Aeronautics and Space Administration, and the Central Intelligence Agency. Some independent agencies are government corporations, such as the United States Postal Service, Amtrak, and the Tennessee Valley Authority.

The major checks on the bureaucracy occur through the president, Congress, and the courts. The president has some power to reorganize the bureaucracy and the authority to appoint the political head of each agency. The president also has management tools, such as the executive budget, that can be used to limit administrators’ discretion. Congress has influence on bureaucratic agencies through its authorization and funding powers and through various devices including enabling provisions, sunset provisions, and oversight hearings that can increase administrators’ accountability. The judiciary’s role in ensuring the bureaucracy’s accountability is smaller than that of the elected branches, but the courts have the authority to force agencies to act in accordance with legislative intent, established procedures, and constitutionally guaranteed rights. The Senior Executive Service, administrative law judges, whistleblowing, and demographic representativeness are internal mechanisms for holding the bureaucracy accountable.

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APMacro: Insurance

types-of-insurance

Insurance can help you manage the risks of rare, but expensive events, throughout your life such as car accident, theft or fire. Without the protection of an insurance policy, you would be responsible for covering the loss you experienced. Insurance provides a way to reduce the risk of financial loss. The function of insurance is simply to restore your property and possessions to the point it was before the incident occurred, to re-establish normalcy in your life. The purpose of insurance is to spread risks out over many people. The economic structure of insurance is built around a system in which the cost of the losses of the few is shared among the many. Insurance can be viewed as a large pot into which all premiums are placed. The pot has to provide for payment of the losses of those who have claims. Insurance is all about managing risk and providing financial compensation in the event of a loss.

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Gov: Office of the President

US President Seal     The constitutional powers of the president include commander in chief, head of the executive branch, making treaties and appointing ambassadors, appointing federal court judges, pardoning people convicted of federal crimes, and executing the laws that Congress passes. The President has seven key duties, and five are specified in the Constitution: serving as head of state, chief executive, chief legislator, chief diplomat, and commander in chief. Two other duties, economic planner and political party leader, are not implied in the Constitution but have developed over time. As head of state, the president represents the nation and performs many ceremonial roles. As the nation’s chief executive, the president uses several tools to see that the laws of Congress are carried out. One tool is the ability to issue executive orders. Other tools are the power to appoint people to important offices in the executive branch, to fire appointed officials, and to appoint officials to the judiciary. However, the Senate must confirm a president’s appointees. As chief legislator, the executive branch is expected to propose legislation to Congress that it wishes to see enacted. The president has a large staff to help write legislation, and the staff also presents to Congress a suggested budget and an annual economic report. As party leader, presidents are expected to appoint members of their party to government jobs. As chief diplomat, the president directs the foreign policy of theUnited Stateswhich include negotiating treaties, making executive agreements, and recognizing foreign governments. As commander in chief, the president shares with Congress the power to make war. The president may also use the military to control serious turmoil in the nation caused by riots or natural disasters. Every president has a unique style of leadership. The most successful presidents have a genuine feel for the hopes, fears, and moods of the nation. Failure to understand the public can prove disastrous for an administration. Successful presidents must be able to communicate effectively and to present their ideas in a way that inspires public support. Sometimes presidents demonstrate leadership by introducing bold new policies at the right time. Good leadership also requires the capacity to be flexible, open to new ideas, and able to compromise. Successful presidents need political courage to go against public opinion to do what they think is best.

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APMacro: Investment Risk

Investment-RiskPeople save and invest their money to receive a return on their savings or investment. Risk comes from the uncertainty about whether you will receive the promised return. The greater the risk you take with your investment, the higher the potential rate of return. Unfortunately, with more risk, it is also more likely that you will lose money. In other words, you can expect a return from taking risks with your money, but you could also take a financial loss. As with any economic decision, there is no free lunch in deciding about investments. Rank each of the investments with 1 representing the lowest risk or reward and 3 representing the greatest risk or reward.

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Gov: Presidential Leadership

Presidential-Inauguration-2     The president is often viewed as the most powerful national leader in the world. However, at one time, U.S. presidents held far less power. During the 1800s, presidents acted mainly as “chief clerks.” Other than carrying out the will of Congress, they had little authority other than those powers explicitly granted by the Constitution. Since the end of World War II, the presidency has been powerful, no matter who was in the White House. By the 1970s, critics of presidential power voiced concerns about the rise of an “imperial presidency,” meaning presidents acted more like emperors than constitutional leaders.

Public expectations, national crises, and changing national and world conditions have required the presidency to become a strong office. Underlying this development is the public support the president recieves from being the only nationally elected official. The president’s election by national vote and position as sole chief executive ensure that others will listen to his ideas. But to lead effectively, the president must have the help of other officials, and to get their help, he must respond to their interests as they respond to his. Presidential influence on national policy is highly variable. Whether presidents succeed or fail in getting their policies enacted depends heavily on the force of circumstance, the stage of their presidency, partisan support in Congress, and the foreign or domestic nature of the policy issue.

To retain an effective leadership position, the president also depends on the strong backing of the American people. While many presidents have high support ratings early in their administrations, these ratings invariably decline due to disappointment, scandal, or general disillusionment. Unfortunately, the public expects far more from the president than he can deliver. The media is also a problem here, as it tends to dwell on “negative spin” regarding presidential “broken promises” or difficulties rather than what the president has actually accomplished.

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APMacro: Types of Investment

Investment-Pyramid_full

We invest money in everything from rare coins to real estate because we expect a favorable financial return in the future. However, not all investments turn out as we hope and expect. Nearly every kind of investment involves some sort of risk. For example, the price of rare coins or houses can go down as well as up. Generally, there is a strong relationship between risk and reward. The higher the potential reward an investment offers, the higher the risk of losses rather than gains. Therefore, in choosing what to invest in it is important to weigh the various risks against the potential rewards.

You don’t need to take great risks to ensure a safe return on your investments—if you are patient. You can invest your money conservatively and let the passage of time increase its value. The trick is to take advantage of the power of compounding. Compounding refers to the ability of an investment to generate earnings that can be reinvested to earn still more earnings. Banks make this happen when they pay depositors compound interest, rather than simple interest, on their savings. Compound interest is interest paid not only on the original amount deposited in the savings account, but also on all interest earned by those savings.

Suppose you left your savings in the bank to compound year after year. In time, you would double your investment. But how long would this take? To find out, you could use the rule of 72. This rule says to divide the number 72 by the annual rate of return on the investment. The answer is the number of years it will take to double the original investment.

We invest in a variety of financial assets, including savings accounts, government bonds, corporate bonds, stocks, and mutual funds. Each has its own level of risk and expected reward. You will learn about the five types  of investing risks and then compare the risks and rewards of several of the most frequently used types of investments.

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