How do banks help increase productivity and how do they create wealth? - Banks increase productivity
by using people's savings to make loans to businesses so that the businesses can grow. Banks create
wealth by enabling the buying and selling of goods and service.
What is the process of banks creating wealth called? - Multiple-deposit expansion
What is fractional reserve banking? - A bank's practice of loaning out the majority of money that it has
on deposit.
What is the FDIC and how does it help individual depositors? - Federal Deposit Insurance Corporation. It
guarantees that the deposits people have made in a bank will be there (up to a certain maximum dollar
amount) and that depositors can withdraw it.
Name four financial products that a retail bank offers. - Savings accounts, checking accounts, money
market accounts, and certificates of deposit
What are credit and interest? - Credit is the ability to carry debt. Interest is the price of borrowing
money.
Describe the unique function or structure associated with each of these financial institutions: - Savings
and loan or thrift —Make mortgage loans to home buyers, Credit union — Functions like a bank, but are
cooperative ventures that depositors own, Mortgage company — Make mortgage loans to home buyers,
Investment bank — Make loans to larger businesses for capital projects
In terms of the money supply of the United States, what do M1 and M2 include? - M1 is the total of
currency, traveler's checks, deposits payable upon demand, and other checkable deposits. M2 includes
the items of M1 plus money market mutual funds, savings, and small time deposits.
What does the velocity of money tell? - How often the same money is used in transactions during a
given period of time.
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