How does the economy work?
Economics
is a complicated subject. To make things easier imagine a
simple
example.
-
Samuel Greedy founds a bank in el Dorado, California.
-
A. Stone, a building contractor finishes his first big job and receives a payment in cash of
$1 million. He deposits this sum in Mr Greedy’s bank. The bank now has $ 1 million in capital. -
Jane McDoughnut wants to set a restaurant in El Dorado. She doesn’t have enough money
so she goes to the bank and presents her business plan.She gets $1 million loan. -
McDoughnut now hires Stone to build her new restaurant. His price is $1 million. She pays him.
-How much money does Stone in his bank account? (1)____________________
- How much money (cash) is located in the bank? (2) ______________________
-
But it doesn’t stop here. Two months later Stone informs McDoughnut that, due to problems
and expenses, the bill for constructing the bakery will be $2 million. McDoughnut is not happy
about it but she has to finish her restaurant, so she goes back to Greedy’s bank and gets an
extra loan of $1 million. Then she pays Mr Stone.
-How much money does Mr Stone have in his account now? (3) _________________
- How much money (cash) is sitting in the bank? (4) _____________________
Current
US banking law permits the bank to repeat this exercise seven more
times. The contractor
would
eventually have ( 5) __________________ in his account and the bank
still has
(
6 ) ____________________ in its safe. Banks are allow to loan $10 for
every dollar they have,
which
means that (7) ____________ % of all the money in our bank
accounts is not covered by coins
or
notes.
If
all of the account holders at Barclays Bank suddenly demand their
money, Barclay will collapse
(
unless the government steps in to save it). The same is true for
CaixaBank, Santander or Deutche
Bank.
What enables banks - and the entire economy- to survive and flourish
is our trust
in
the future.
This
trust is the only backing for most of the money in the world.
EXERCISES
-
Read the text and complete the blanks with the correct quantities.
-
Find words in the text meaning the same as the following.
employ now facilitate building confidence set up
-
Discuss: are you an optimistic person? Do you think the economy is for the pessimistic? Why?
What did you learn from the text? -
Find out: what happened in the 2008 crisis? Can you find any connection with what you have
just read? Have you heard about the Fòrum Filatélico. What happened?
-
Do you understand the jokes? Which one is your favourite? Why?