11. The supply of money. (Unit 8. Ex. 8.5.2; ex. 8.5.3)

Your personal supply of money changes often. Increases and decreases of your supply of money probably affect how much you spend. Similarly, the amount of money in the total economy changes often. These changes are more complex than changes in your personal money supply. These fluctuations influence not only how much spending occurs but also the general level of business activity. The money supply sometimes expands or contracts. The government prints new bills and mints new coins every ear to replace those that are worn. It also changes the money supply to meet people’s needs. Banking laws in the US require a bank to put a certain percentage of its deposits in reserve. A bank’s reserve is the money that bank must set aside and not loan to anyone. None of the bank’s transactions involve currency. All are completed trough checking accounts. The series of deposits caused the total supply of checking account money to expand. But this expansion does not continue forever. Several factors stop the process of expansion or even reverse it.

First, federal law requires the bank to keep a percentage of its demand deposits in reserve. Second, expansion will stop if the bank stops making loans. Also if people stop putting their money into checking accounts, the bank will not be able to make loans. Finally, if many people suddenly withdraw their money all at once, the bank must do more than stop making loans. It will have to start calling for payment of its loans so that it can increase its reserves.

12. The role of central banks and commercial banks. (Unit 8. Ex. 8.5.4; ex. 8.6 Supporting materials). Types of bank accounts. (Unit 8. Ex. 8.6.C. Supporting materials)

It’s obvious that when it comes to dealing with money, the banks are the main institutions which can provide a great variety of services essential to trade and to entire economy of nation. There are two main types of bank:

Central banks control the banking of the whole country and work together with the government to supervise the country’s economy. The central bank of the UK is the Bank of England, in the USA it is the Federal Reserve System, in single-currency Europe it is the European Central Bank, in Russia it is the Central Bank of Russia.

The main functions of central banks are the following:

to issue banknotes and coins

to look after the nations gold reserves

to make sure that the national currency keeps its value

to act as bankers for the national government and the other banks in the country

to keep inflation under control

to supervise the commercial banks

Commercial banks are the public or private banking institutions which people use for their everyday money matters. This type of banks may suggest us three basic types of account:

Current account is the most popular one which is used for handling day-to-day finances. Though this account holder doesn’t usually receive any interest on the money he pays, it still has some advantages. The major plus is the safety and the availability of money.

Deposit account is really designed for saving money and may be used for short-term, small savings. The money paid into this type of account earns a small amount of interest. Although the customer has no ability to use the account as easily as the current account, it has some advantages over the last. Firstly, it’s easier to open the deposit account. Secondly, a deposit account earns for the account holder. But you should remember some rules not to lose your interest.

Investment account may be used for larger, long-term savings. Money paid into this type of account usually earns more interest, but the customer can’t get his money immediately

Institutions that channel funds from people and institutions to lend to those wishing to borrow are called financial intermediaries.

So, now we know a lot about banks and bank services.