Problem_Set_5.docx - ECON 214 PROBLEM SET 5 1 What are the...

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ECON 214 P ROBLEM S ET 5 1) What are the three functions of money? Which function is the defining characteristic? Pp. 516-519 The three functions are a medium of exchange, what people trade for goods and services; a unit of account, measure in which prices are quoted; and a store of value, a means for holding wealth. The function that is the defining characteristic would be the medium of exchange. Without money, all transactions would become a bartering solution which involves the direct trade of one good or service for another. 2) How is the discount rate different from the federal funds rate? Federal funds rate is interest rates on loans between the private banks while the discount rate is the interest rate on the discount loan made by the federal reserve to the private banks. The Fed controls the interest rate for the banks in the discount rate. 3) Consider the balance sheet for the Wahoo bank as presented below.
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  • Fall '10
  • staff
  • Monetary Policy, Federal Reserve System, government securities, Wahoo bank

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