Chapter 14 - Chapter 14 5. One of the principal functions...

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Chapter 14 5. One of the principal functions of the Federal Reserve System is to provide the nation with an elastic currency. (a) Define “elastic currency.” (b) Describe how the Federal Reserve System fulfills this responsibility. (c) Suppose that the nation’s money supply were required by law to be equal to the amount of gold held by the government, and that paper money and coin were circulated strictly in accordance with this formula. What problems would be created by such a system? - The Federal Reserve System has various functions; one of the functions of the Federal Reserve System is to help the nation achieve its major economic goals of full employment, price stability, and economic growth. The Federal Reserve does this y regulating the supply of money and credit. - Almost all the currency in circulation is in the form of Federal Reserve notes. One of the principal advantages of this form of money is that it is elastic—its supply will automatically expand or contract as necessary.
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This note was uploaded on 05/03/2008 for the course POL 101 taught by Professor Sekercioglu during the Spring '08 term at SUNY Stony Brook.

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Chapter 14 - Chapter 14 5. One of the principal functions...

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