Module 38
Money, Banking & Interest Rates
This high school economics module explains what money really is and how the price of borrowing shapes the economy.
Students analyze payment methods, central banks, inflation, crypto, stocks, bonds, bond prices, nominal and real interest rates, borrower risk, loanable funds, and expected inflation.
Module At A Glance
Grade Levels:
9th - 12th
Est. Length:
1-2 Weeks (38 slides)
Activities:
8 Activites
Articles:
0 Articles
Languages:
English & Spanish
Curriculum Fit:
Math, Business, Economics, CTE, Social Studies
Standards Alignment:
CEE National Standards
Guiding Questions
- What is money really, and how do payment methods differ from money?
- How do central banks control the money supply?
- Why can too much money relative to output lead to inflation?
- How do firms and governments use stocks and bonds to raise funds?
- Why do bond prices move inversely with market interest rates?
- How do nominal rates, inflation, and real interest rates affect savers and borrowers?
- Why do riskier loans carry higher interest rates?
- What causes interest rates to rise or fall across the economy?
Enduring Understandings
- Money is defined by its functions: medium of exchange, store of value, and unit of account; cards and payment apps transfer balances but are not money themselves.
- Central banks manage the money supply, and when money grows too quickly relative to output, prices tend to rise over time.
- Cryptocurrency can perform some money-like functions, but volatility and limited pricing use make it behave more like a speculative asset than official money.
- Companies and governments raise funds by issuing stocks and bonds, and investors accept different risks in exchange for dividends, capital gains, or interest.
- Bond prices move inversely to market interest rates because existing fixed payments become more or less attractive as new rates change.
- The real interest rate, calculated as the nominal rate minus inflation, shows the true reward for saving and the true cost of borrowing.
- Interest rates move with borrower risk, the supply of savings, the demand for funds, and expectations about future inflation.
Module Vocab & Key Topics
- Money
- Anything widely accepted as a medium of exchange, store of value, and unit of account in an economy.
- Medium of Exchange
- A function of money that allows people to buy and sell goods and services without relying on barter.
- Store of Value
- A function of money that lets people hold purchasing power for future use.
- Unit of Account
- A function of money that provides a common way to measure and compare prices, values, and debts.
- Payment Method
- A tool such as a debit card, credit card, or payment app that transfers balances to complete a purchase but is not money itself.
- Central Bank
- The institution responsible for managing a country's money supply and monetary system, such as the Federal Reserve in the United States.
- Money Supply
- The total amount of money available in an economy at a given time.
- Inflation
- A general rise in prices that reduces the purchasing power of money over time.
- Cryptocurrency
- A digital asset that can be transferred electronically but is usually not official money because it is volatile and rarely used as a unit of account.
- Speculative Asset
- An asset bought mainly because investors hope its price will rise, even though its future value is uncertain.
- Stock
- A share of ownership in a company that can provide returns through dividends, capital gains, or both.
- Dividend
- A payment a company makes to shareholders from its profits.
- Capital Gain
- The profit earned when an asset is sold for more than its purchase price.
- Capital Loss
- The loss incurred when an asset is sold for less than its purchase price.
- Bond
- An IOU issued by a company or government that promises interest payments and repayment of the amount borrowed.
- Bond Market
- The market where investors buy and sell bonds after they are issued.
- Interest Rate
- The price of borrowing money or the reward paid for lending or saving money, expressed as a percentage.
- Nominal Interest Rate
- The stated interest rate on a loan, bond, or savings account before adjusting for inflation.
- Real Interest Rate
- The interest rate after adjusting for inflation, calculated as the nominal interest rate minus the inflation rate.
- Default
- The failure of a borrower to repay a loan or bond as promised.
- Credit Score
- A rating used to estimate how likely a borrower is to repay debt, which helps lenders set interest rates.
- Supply of Savings
- The amount of funds households and other savers make available for borrowers to use.
- Demand for Funds
- The amount of borrowing desired by households, businesses, and governments at different interest rates.
- Expected Inflation
- The inflation rate lenders and borrowers anticipate in the future, which can influence nominal interest rates today.
