Unit 1 · Level 1 · What money is
Review: What money is
Money is a shared story that works while people accept it. It does three jobs: exchange, measuring stick, store of value. Banks create most of it by lending, and your app balance is a bank IOU sitting on top of central bank money. Let's see what stuck.
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What you get asked
Strip everything away: what is money's real foundation?
No gold backs the euro, and the paper is nearly worthless. Trust and acceptance do all the heavy lifting.
Match each event to its effect on money.
The credit cycle creates and destroys money constantly, and the two layers of euros behave differently in a crisis.
Banks create new money when they make ___.
Loans create deposits: the single most useful sentence in this unit.
Most of the euro money supply exists as…
Cash is the small visible tip; bank-created deposits are the iceberg underneath.
Your €2,000 bank balance is best described as…
You've lent your bank €2,000, and the EU guarantee scheme backs that promise up to €100,000. Unit one, done. Next stop: what happens when money loses its bite. 🐜
The rest of this unit
Shells, paper, pixels: why money works at all, and who really creates it.