This section examines the interactive role that you and your bank together play in the monetary system. To aid in that examination, we will discuss some important economic concepts. We will close the discussion with an explanation of fractional bank reserves.

For now, keep moving through these pages in sequence. Since you deal with your bank in terms of money, let's move to a definition of money.

Use this outline of topics when you return to review this material.

Money

Having a clear definition of money and knowing the components of money aggregates will also aid in understanding the role of money in an economy.

Effects of Inflation/Deflation

Changes in the quantity of money (inflation or deflation) have specific effects on market determined prices. Artificially induced inflation or deflation distorts the information contained in prices.

Money Supply Expansion

Let's look at how a transaction of yours increases the quantity of money.

Fractional Bank Reserves

How do fractional reserves influence the quantity of money.