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📘 Financial Literacy Essay Exam


Time: 90–120 minutesInstructions:Answer all five questions.

  • Use complete sentences

  • Show all calculations

  • Use clear economic reasoning and vocabulary

  • Label formulas and steps where applicable

✏️ Essay Questions

1. Inflation vs. Wage Growth

A worker earns $52,000 annually and receives a 0.55% annual raise while inflation averages 3% per year.

Tasks:

  • Calculate the worker’s nominal salary after 5 years

  • Calculate the worker’s real income after adjusting for inflation

  • Determine whether the worker is wealthier or poorer in purchasing power

  • Explain the difference between nominal income and real income

  • Identify two strategies the worker could use to protect or grow income against inflation

2. Debt and Life Hours

Compare the following two car-purchase options:

  • Option A: $32,000 car loan at 7.5% APR for 6 years

  • Option B: $12,000 cash purchase

Assume:

  • Income: $22/hour

  • Taxes: 18%

Tasks:

  • Calculate monthly payment and total interest paid for Option A

  • Calculate net hourly wage after taxes

  • Calculate total life hours required for each option

  • Explain which option builds more long-term wealth and why

3. Opportunity Cost & Compound Interest

A student either:

  • Invests $5,000 at 8% annually from age 18 to 65, or

  • Spends the $5,000 immediately

Tasks:

  • Calculate the future value of the investment

  • Explain opportunity cost

  • Explain compound interest

  • Explain why starting early matters more than investing later

4. Taxes and Inflation

A household earns $75,000 annually.

Tasks:

  • Explain how direct taxes (income, payroll) reduce income

  • Explain how indirect taxes (sales tax, fuel tax, fees) reduce purchasing power

  • Explain how inflation acts as a “hidden tax”

  • Argue whether financial literacy or government policy has a greater impact on long-term financial outcomes

  • Support your argument with reasoning

5. Financial Freedom vs. Dependency

Two individuals earn the same income but make different financial decisions.

Tasks:

  • Using behavioral economics, explain how:

    • Debt usage

    • Delayed gratification

    • Spending and saving decisions

  • Affect long-term freedom, stress, and stability

  • Explain how small decisions compound over time

📚 Florida Sunshine State Standards Alignment

Social Studies / Economics

  • SS.912.E.1.3 – Analyze how incentives and opportunity costs influence decision-making

  • SS.912.E.1.6 – Compare benefits and costs of different economic choices

  • SS.912.E.2.1 – Identify factors that affect income and purchasing power

  • SS.912.E.2.6 – Explain how inflation impacts consumers and workers

Financial Literacy Standards

  • SS.912.FL.2.1 – Analyze sources of income and how income is affected by taxes and inflation

  • SS.912.FL.3.2 – Evaluate the costs and benefits of using credit

  • SS.912.FL.4.1 – Explain how interest rates affect borrowing and saving

  • SS.912.FL.5.1 – Evaluate investment options and the power of compound interest

Mathematics (Applied)

  • MA.NSO.1.1 – Perform calculations with real numbers

  • MA.AAF.2.2 – Use exponential growth models (compound interest)

🧮 Grading Rubric (100 Points Total)

Criteria

Exemplary (A)

Proficient (B–C)

Developing (D)

Points

Calculations & Accuracy

All calculations correct, labeled, and shown

Minor errors, work mostly shown

Major errors or missing work

30

Economic Reasoning

Clear, logical, well-supported explanations

Reasonable explanations with limited depth

Weak or unclear reasoning

25

Use of Vocabulary

Accurate use of financial and economic terms

Some correct usage

Minimal or incorrect usage

15

Application & Analysis

Strong real-world connections and insight

Basic application

Little application

15

Organization & Writing

Clear, organized, complete sentences

Understandable but uneven

Disorganized or incomplete

15

Total




100




























Financial Literacy Essay Exam — One-Page Answer Key


1. Inflation vs. Wage Growth

  • Starting salary: $52,000

  • Raise: 0.55% → ( 52,000(1.0055)^5 ≈ $53,445.82 ) (nominal)

  • Inflation: 3% → ( (1.03)^5 = 1.159274 )

  • Real income after 5 years:( 53,445.82 á 1.159274 ≈ $46,102.83 )

  • Purchasing power loss:( 52,000 − 46,102.83 = $5,897.17 ) (≈ –11.3%)

  • Conclusion: Worker is poorer in real terms

  • Nominal vs. Real: Nominal = current dollars; Real = inflation-adjusted

  • Income protection strategies (any two): Increase skills/earnings, invest in inflation-hedging assets, negotiate COLA, reduce high-interest debt


2. Debt and Life Hours

  • Wage: $22/hr, Taxes: 18%

  • Net wage: ( 22 × 0.82 = $18.04/hr )

Option A – Loan

  • Loan: $32,000, 7.5% APR, 6 years (72 mo)

  • Monthly payment ≈ $553.28

  • Total paid ≈ $39,836.42

  • Interest: ≈ $7,836.42

  • Life hours: ( 39,836.42 á 18.04 ≈ 2,208 hrs )

Option B – Cash

  • Price: $12,000

  • Life hours: ( 12,000 á 18.04 ≈ 665 hrs )

Conclusion: Cash purchase builds more wealth (no interest, fewer life hours).


3. Opportunity Cost & Compound Interest

  • Investment: $5,000, 8%, age 18–65 (47 yrs)

  • Future value:( 5,000(1.08)^{47} ≈ $186,160.06 )

  • Opportunity cost: Spending $5,000 today costs ~$186k in future wealth

  • Key idea: Time + compounding matter more than amount invested later


4. Taxes and Inflation ($75,000 Household)

  • Direct taxes: Income tax, payroll taxPayroll (7.65% example): ≈ $5,737.50

  • Indirect taxes: Sales tax, fuel tax, fees (reduce purchasing power)

  • Inflation (3%) one-year loss:( 75,000 á 1.03 ≈ 72,815.53 ) → $2,184 loss

  • Five-year purchasing power loss: ≈ $10,318

  • Argument: Strong answers recognize both—policy sets conditions; literacy determines outcomes within them


5. Financial Freedom vs. Dependency

  • Behavioral economics concepts: Present bias, delayed gratification, lifestyle inflation, loss aversion

  • Key outcome: Debt + poor decisions reduce freedom; disciplined saving/investing increases stability and options

  • Conclusion: Same income, different behaviors → very different long-term results


Quick Grading Benchmarks

  • Correct math + reasoning = A

  • Minor math errors, solid logic = B/C

  • Missing calculations or weak explanations = D/F


 
 
 

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