Vocabulary 1
Give one example of a type of loan.
Student loan, auto loan, home loan/mortgage, business loan, etc.
What is the name for a person who helps customers at a bank?
Teller
If Person A deposits $250 into their bank account, what is the maximum amount of money the bank can lend to Person B?
$225
What is one of the three main functions of the Federal Reserve Bank?
Keeps banks safe/supervision and regulation; makes payments secure/protects cash flow; stabilizes the economy through monetary policy
(1) The word for when you put money into an account, and (2) the word for when you take money out of an account.
(1) deposit, (2) withdraw/withdrawal
What is interest?
The fee you must pay when you borrow money/take out a loan, usually a percentage of the total amount of money being borrowed.
If 10 people made $50,000 a year, and three of them bought cars from another country for $12,000, what is the money supply at the end of the year?
$464,000
What is one way the Federal Reserve Bank protects payments and cash flow?
Clears checks for deposit, secures direct deposits, makes sure that money can get to different bank accounts, etc.
What is currency?
Dollar bills, coins, checks, and other money of a country.
What does the FDIC do?
Insures the money in bank accounts, up to $250,000 per person per bank.
If Person A deposits $575 in his account, and Person B borrows $380 and deposits $245 in her account, how much new money was created?
$738
What are two strategies the Federal Reserve bank uses to keep the economy healthy through monetary policy?
Reserve requirements, federal funds rates/federal interest rates, buying/selling bonds
What is the difference between a checking account and a savings account?
A checking account is more liquid or is used more frequently, and a savings account is used to save money and may have more restrictions on withdrawals.
What is the difference between inflation and recession?
During inflation there is too much money and credit in the economy compared to goods and services; during recession there is not enough money and credit in the economy compared to goods and services.
If Person A deposits $1350 in her checking account, and Person B borrows $600 and then deposits $420 in his account, how much money can the bank lend another person?
$993
What would most likely happen if banks loaned $100,000 to every person in the United States at the same time?
Inflation
Explain the reserve requirement.
The Federal Reserve requires banks to reserve 10% of checking account deposits. Banks can lend the other 90% of the money to other customers.
Explain the Federal Funds Rate.
The Federal Reserve determines interest rates for loans between banks and for loans from banks to customers.
Five people make $15,000 a year, ten people make $30,000 a year, and three people make $75,000 a year. If the bank loans everyone $5,000 a year, 7 people pay back this loan by the end of the year, and the 18 people have a total of $250,000 in checking accounts and $300,000 in savings accounts this year, what is the money supply for this economy at the end of this year?
$905,000
What are two things the Federal Reserve should do to stop inflation, and two things the Federal Reserve should do to stop recession?
Stop inflation: raise reserve requirement and raise federal funds rate/federal interest rates
Stop recession: lower reserve requirement and lower federal funds rate/federal interest rates