1. Functions of money

  1. One of the functions of money is that it is a ‘store of value’. Explain
  2. What is the difference between fiat money and a credit card?
  3. How do commercial banks maximize their stockholders’ wealth?
  4. The Federal Reserve System (the Fed) is the central bank of the United States. What are its primary functions?
  5. Assume that the US economy is experiencing a rather severe recession. How might the Fed utilize the discount rate to speed up the economy? Explain in detail.
  6. Assume that the US economy is experiencing a rather severe recession. How might the Fed utilize open market operations to speed up the economy (use lecture notes to answer this)? Explain in detail.
  7. Using the explanation in the lecture, explain how the Fed’s purchase of bonds (securities) on the open market can not only increase the money supply through banks’ lending but also decrease the EFFECTIVE interest rate for borrowers. Use an example with actual interest rates.
  8. Explain how the required reserve requirement can be used by the Fed to either expand or contract the money supply.
  9. A) Using the formula given in the lecture, calculate how much the money supply would increase given an injection of $10 million with a required reserve ratio of 5%. B) Given the same data, how much would the money supply decrease if $10 million were taken out of the money supply with a 5% required reserve ratio?.
  • What 3 events turned an ordinary recession in 1929 into the Great Depression?
  1. Ironically technological advancements have made bartering, which used to be an extremely inefficient exchange of values, more and more popular in the present day. Think of and identify four situations where present-day bartering becomes beneficial to both sides of the transaction.
  2. Assume that you have 100 $1 bills. Assume also that I have 4 $100 bills. Explain why even though you have more paper money (100 pieces of paper), the value of my four pieces of paper is greater than yours.
  3. The Federal Reserve can in effect expand or contract the supply of money in the US.
    1. Explain what you think the Fed must do to expand the money supply.
    2. Identify 2 reasons why the Fed would do this.
  4. Is it possible that the Fed, since it supposedly acts independently of the US government, could use monetary policies (expanding or contracting the money supply) in order to benefit only the wealthiest corporations and individuals while ignoring the lower classes? Explain your opinion here in detail.
  5. Explain your opinion as to whether you feel that using a central bank (the Fed) to control all of the US’s major monetary policies as well as all of its money is dangerous? What might be some of the unintended consequences of giving this much power to one private entity?