use the case study

Key Content:

• Money supply measures include currency in circulation and transaction and time (demand) deposits.
• Markets determine the values of nations' currencies, reflecting nations' productive capacities and confidence in the stability of their governments.
• Banks and other financial intermediaries perform an important role in the economy by coordinating the actions of savers and lenders on the one hand, and borrowers and investors on the other.
• The real interest rate is the price of money.(The nominal interest rate is the real interest rate plus the expected rate of inflation.)
• Changes in real interest rates change the levels of saving and borrowing in the economy.
• The level of investment in the economy, and therefore the rate of economic growth, is directly related to interest rates.

Mythconceptions:

• Money has no value unless it is backed by a precious metal.
• Money has always been backed by precious metals.
• Checks aren't real money.
• The quantity of money in circulation is constant.
• The Federal Reserve and the U.S. Treasury determine the composition of the money supply.
• Money deposited in a bank (financial intermediary) stays there until the depositor takes it out.
• All banks are always "loaned up.
• Deposits are assets and loans are liabilities for banks.

Frequently Asked Questions:

• Wouldn't money be worthless without gold/silver backing?
• Why are banks important to the economy?
• How are banks different from other types of financial intermediaries?
• How do banks create money?
• What is the money multiplier?
• How do banks "set" interest rates?
• Why are interest rates different for different things - mortgages, savings accounts, auto loans, etc.?
• Isn't it always good for the economy if interest rates are low?
• Isn't it better for business if people spend their money rather than saving it?
• Is it better (for you / for the economy) to put your money in a savings account or to buy government bonds?

Classroom Activity Options

• Demonstrate an example of money creation through the process of commercial lending.
• Demonstrate an example of the money multiplier, noting how money is created and destroyed by the deposit/lending/repayment cycle.
• Review the circular flow model.Further develop the model by adding in savings, borrowing, and investment.
• Use historical tables and historical business model charts to develop the relationship between real and nominal interest rates and the level of inflation.
• Use interest rate table (or assign students to investigate various interest rates) to develop the relationship between interest rates and risk.
• Use historical tables to demonstrate the relationship between interest rates, investment, and economic growth.

Question ten.

1.The majority of firms, ____________ when creation economic pronouncements are least likely to take explanation of______________

2.In economic theory of ________ ,it is expected that employees seek to___________

3.The impartial of economic movement is to____________

4.Which one of the following phrases is normally a feature of a positive statement?

5.Commercial possessions _______-- are persons which_____________________

6.The factor of production, land, includes

7.Employment is_________ a factor of production because_______

8.The factor of production, __________ capital includes_____________

9.The core function of the factor of production known as enterprise includes

10.Which one the following is least likely to be a scarce resource?