How does the economy work?

Economics is a complicated subject. To make things easier imagine a 
simple example.

1. Samuel Greedy founds a bank in el Dorado, California.

2. 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.

3. 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.

4. 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) ______________________

5. 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

1. Read the text and complete the blanks with the correct quantities.

2. Find words in the text meaning the same as the following.

employ                  now     facilitate       building confidence set up

3. Discuss: are you an optimistic person? Do you think the economy is for the pessimistic? Why?
    What did you learn from the text? 

   

4. 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?
    

   

   

                 

   

5. Do you understand the jokes? Which one is your favourite? Why?