Terms & Concepts A
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 a customer deposits $10,000 into a bank account, and the federal reserve requirement is 15%, how much money does the bank have to save as a reserve?
$1,500
What is one major way that banks make money?
Loaning money to customers.
What is currency?
Dollar bills, coins, checks, and other money of a country.
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 a bank has $300,000, and the reserve requirement is 20%, how much of this money can it lend to customers?
$240,000
What is one major way the government ensures that banks have enough money for their customers?
Reserve requirements, also insurance through the FDIC.
(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 does the FDIC do?
Insures the money in bank accounts, up to $250,000 per person per bank.
If Person A deposits $5000 into a bank account, and then the bank lends $1500 of this money to Person B, how much money is in the bank? (Reserve requirement is 10%).
$3000
What would most likely happen if banks loaned $100,000 to every person in the United States at the same time?
Inflation.
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 $1000, and then Person B borrows $600 from the bank and then deposits $400 in his account, how much money can the bank lend another person? (Reserve requirement is 10%)
$660
What would most likely happen to the money supply in a country if the reserve requirement was increased? Explain.
The money supply would decrease, because banks would lend less money.
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 get $20 every day, five people get $10 every day, and five people get $5 every day, starting on Day 1. On Day 1, the price of candy is $5, and ten people buy this candy. However, the price of candy rises by $5 each day. On Day 2, five people buy candy, and on Day 3, two people buy candy. What is the total money supply at the end of day 3? (Don't include what the candy store has).
$395
What are two things the Federal Reserve can do to stop inflation, and two things the Federal Reserve can 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.