Boss: The money machine

What you get asked

1. Most euros in existence were created by…

   Loans create deposits: the engine room of the money supply. Cash from the ECB is only the small visible slice.

2. An investment returns 7% while inflation runs at 5%. What is the real return, in %?

   7 − 5 = 2% real. Nominal is the sticker; real is what your future self can actually buy.

3. Boss round: match each concept across the whole league.

   Money, inflation, rates, central banks: four units, one connected machine.

4. Central banks target about ___ inflation to keep a safe distance from deflation.

   Low enough to be barely noticed, high enough to buffer against the deflation trap and leave room to cut rates.

5. Surprise inflation tends to punish…

   Anyone owed fixed euros gets repaid in cheaper ones; anyone owing fixed euros quietly wins. Inflation is a transfer, not just a tax.

6. Inflation hits 10% and the central bank hikes hard. Which chain of events is right?

   That's transmission: the whole 2022 playbook in one line. You've beaten the money machine, and you now read macro headlines the way bankers write them. 🐜

The rest of this unit

The people who set the price of money: their mandate, their tools, and their words.

• The mandate
• The toolkit
• 2022: the great hike
• Central bank speak