Money and Banking
Purpose
In this chapter, you have learned how money is defined and measured, the role banks play in the financial system, and how banks create money through a fractional reserve banking system.
The purpose of this project is to explain money, what happens to money during hyperinflation, and the role of banks in the Great Recession.
Directions
This project has three parts. In the first, you will explore the meaning of money.
In the second, you will define and compare/contrast inflation, hyperinflation, and deflation and which roles of money they affect.
In the third, you will reflect upon and explain the role banks played in creating the housing bubble of the early-to-mid 2000s and its subsequent collapse during the Great Recession of December 2007–June 2009.
Part 1 - Explore the Meaning of Money
Money has a far more expansive meaning than simply the coins and bills we carry around in our pockets. Using both Lesson 14.1 and the following video, evaluate what the true definition of money entails.
In your own words, define money, identify the roles of money, and provide examples of these roles in your own life.
Part 2 - Compare Inflation and Deflation and Describe the Roles of Money
Inflation and deflation incur drastic effects on money and economies. The following resources provide information on the effects of inflation and deflation, along with specific examples:
Compare and contrast the concepts of inflation and deflation.
Identify historical periods of deflation in the U.S. and Japan, and indicate why deflation is a sign of poor macroeconomic health for an economy.
Define the term hyperinflation and which roles of money break down during a period of hyperinflation.
Part 3 - Explain the Role of Banks before and during the Great Recession
Review the following articles on the Great Recession:
Describe what a housing bubble is and the role banks played in creating this bubble with subprime mortgage offerings.
Explain how this housing bubble eventually burst in the U.S., how it was a contributing (and sustaining) factor in the Great Recession, and how the U.S. housing market has changed since.