The building blocks
Money
A trusted way to trade, save and measure value
Banks
Take deposits and make loans, which creates new money
Central banks
Like the Federal Reserve, set interest rates
Trade
Countries specialize and swap what they make best
The business cycle
- ExpansionJobs and spending grow
- PeakPrices and borrowing run high
- RecessionSpending and jobs shrink for a while
- RecoveryGrowth returns, often helped by lower rates
Inflation
When prices rise across the economy, each dollar buys less. The Federal Reserve aims for about 2% a year.
Key terms
| Term | Meaning |
|---|---|
| GDP | The total value of goods and services a country produces |
| Interest rate | The price of borrowing money |
| Inflation | A general rise in prices |
| Compound interest | Earning interest on past interest |
This is general education, not financial advice.
Sources: Federal Reserve; U.S. Bureau of Economic Analysis
Remember
Economies run on trust, trade and credit; interest rates and inflation connect a family budget to the whole world.
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Answer key
- What does GDP measure?Total value of goods and services producedGross domestic product.
- What is inflation?A general rise in pricesEach dollar buys less.
- What does the Federal Reserve mainly set?Interest ratesIt sets key interest rates.
- Why do countries trade?To specialize and swap what they make bestSpecialization makes both sides better off.
- What is compound interest?Earning interest on past interestGrowth builds on growth.