GBS151 Chapter 15 REVIEW QUESTIONS 1-5 - Accept deposits...

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Chapter 15: Money and Banking REVIEW QUESTIONS 1-5 Page 408 1. Explain the four characteristics of money. Portability modern currency is light and easy to handle Divisibility modern currency is easily divisible into smaller parts with fixed values Durability modern currency neither dies nor spoils and if it wears out it can be replaced and it’s also hard to counterfeit Stability the value of paper money also fluctuates but it is considerable more stable and predictable 2. What are the components of M-1 and M-2? M-1 includes currency, demand deposits, and other checkable deposits. M-2 includes M-1 plus time deposits, money market mutual funds, savings deposits, and overnight transactions. 3. Explain the roles of commercial banks, savings and loan associations, credit unions, and nondeposit institutions in the U.S. financial system. Commercial banks: Accept deposits and make loans to earn profits. Savings and loan associations:
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Unformatted text preview: Accept deposits and make loans primarily For home mortgages. Non-deposit ins±tu±ons: Collect money, provide interest or other benefts, and/or make loans. ²his category includes pension Funds, insurance companies, fnance companies, and securiTes investment dealers. 4. Describe the structure of the ²ederal Reserve System. ²he ³ederal Reserve System is comprised oF a board oF seven governors, 12 reserve banks, and member banks. Its key FuncTons are to control the money supply by establishing and managing monetary policies and to serve as both the government’s bank and as the bankers’ bank. 5. Show how the ²ed uses the discount rate to manage in³a±on in the U.S. economy. ²he ³ed regulates the supply oF money, decreasing the discount rate to keep the economy From slowing down too much and/or increasing it to sTmulate the economy....
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