Contextualization

The concept of "Interest" is a fundamental notion in economics and finance, touching on subjects as diverse as personal finance, banking, investment and economic theory. At its very core, interest is the cost of using somebody else's money. When you borrow, you pay interest. When you lend or deposit funds in bank accounts, you can earn interest.

In essence, it presents a time value of money concept that states money available today is more valuable than the same amount tomorrow. This ties into the core economic principle of immediate consumption versus delayed gratification. It also introduces the concept of risk and reward, as the rate of interest is generally proportional to the risk perceived by the lender.

In our daily life, interest is something that touches almost everyone. From the interest rate on your house mortgage, to the return on your savings account or your investments, or even the cost of your credit card debt, the concept of interest is a crucial part of personal finance.

In a broader sense, interest rates also play a key role in the overall economy. They have a direct impact on the cost of borrowing for individuals and corporations, and an indirect impact on the health of the stock market and the employment rate. The monetary policies of central banks, which greatly influence the economic cycle, mainly operate through manipulating interest rates.

References for Deep Dive

1. Khan Academy: Interest and debt
2. Investopedia: Interest
3. Corporate Finance Institute: Time Value of Money
4. Economic Policy Institute: How do interest rates affect the economy?
5. BBC: The Beginner’s Guide to Interest Rates
6. Federal Reserve Bank of San Francisco: What is the difference between a bank’s liquidity and its capital?

Practical Activity

Activity Title: "Exploring the Impact of Interest"

Objective:

The goal of this project is to provide a comprehensive understanding of how interest rates affect individuals, businesses, and the larger economy through practical application.

Description:

Students will create a hypothetical scenario that evaluates different aspects of the interest concept and its application in real life. This includes roles as a consumer, a business owner, and a policy-maker. In the process, students will learn how interest rates affect borrowing, investing, economic planning, and the overall economy. They will also analyze the effect of changing interest rates on these scenarios.

The project will be divided into three stages:

1. Personal Finance: Students will simulate scenarios related to personal loans and savings accounts.
2. Business Interactions: Students will delve into the impacts of interest rates on business loans and investments.
3. Macro-Economic Implications: Students will study the role of central banks and the effect of their intervention on the economy through interest rates.

The final deliverable will be a comprehensive report detailing each of these stages, the strategies used, the results obtained, and the insights learned in each of these roles.

Group Size:

This project is designed to be carried out by groups of 3 to 5 students.

Duration:

The overall project is expected to take approximately 15 hours per student to complete.

Necessary Materials:

1. Personal computers or laptops with internet access for research.
2. Spreadsheet software (for example, Microsoft Excel or Google Sheets) to record and analyze data.
3. Access to financial news websites or finance-related textbooks for reference.

Detailed Step-by-Step:

1. Personal Finance Activity: Divide the group members into two roles: one as a borrower for a personal loan and others as a bank providing the loan. Research and discuss the factors banks consider to decide the interest rate on a personal loan. Simulate a scenario in a spreadsheet where the borrower is taking a loan and repaying it with interest over a certain period. Also, simulate a savings account where the 'bank' pays interest to the 'customer'.

2. Business Interactions Activity: Now switch roles where one person acts as a business owner taking a business loan from a bank (other group members). Similarly, simulate the scenario in a spreadsheet to analyze how varying interest rates affect the business's ability to repay the loan. Also, consider a scenario where the business owner invests the surplus funds in a fixed deposit earning a certain rate of interest.

3. Macro-Economic Implications Activity: Here, all group members act as a team of economists for the central bank. They must research how the central bank uses interest rates as a tool for monetary policy, the implications on the national economy, businesses, and individuals. They should also study a real-life instance of how a change in the monetary policy affected the economy.

4. Report Writing: With the findings from these simulations, the students will compile a comprehensive report. This report will not only document the process and findings of each activity but also entail the reflection of each student on how the concept of interest impacts various areas of life.

Written Document Description

The report should include:

1. Introduction: The student must contextualize the theme of 'Interest', its relevance, real-world application, and the objective of the project.
2. Development: Detail the theory behind the concept of 'Interest', explain each activity in detail, indicate the methodology used, and finally present and discuss the obtained results.
3. Conclusion: Revisit the project's main points, explicitly state the learnings obtained, and the conclusions drawn about the project.
4. Bibliography: Cite all the sources that the group used to develop the project. This might include books, web pages, videos, etc.

The final document should be a clear reflection of the effort, understanding, and collaboration of the group members, reflecting both their technical and socio-emotional progress.