As we progress to understanding the weird world of money, here are some financial terms worth noting.
Fractional reserve banking – a banking system in which only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. A Bank loans most of the money to those they deem “worthy” from depositors’ accounts while having a fraction of their money (physical bills) on hand.
Inflation – the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Paying more for the same services or goods [over time].
Deflation – a contraction in the supply of circulated money within an economy, and therefore the opposite of inflation. In times of deflation, the purchasing power of currency and wages are higher than they otherwise would have been. Paying less for same services or goods [over time].
All references can be found on www.investopedia.com