Summary10 - M1, which includes currency, coins, and...

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CHAPTER 10 SUMMARY: 1. What is money? Does it always have to be little coins in your pocket and green strips of paper in your wallet? Could we use marbles or feathers as money? Money is anything that performs the three basic functions of money: a medium of exchange, a unit of account, and a store of value. 2. Is there any difference between using feathers or stones as money and using little green strips of paper? It makes little difference which kind of money is used. Whatever performs the three functions of money in a society is money. Money that has some intrinsic value is called commodity money. Money that has no inherent value, such as strips of green paper, is called fiat money. 3. How do we know how much money there is in the United States? There are several measures of the money supply in the United States. The narrowest measure is
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Unformatted text preview: M1, which includes currency, coins, and traveler's checks in circulation, plus checking and other demand deposit accounts. M2 includes savings accounts, money market accounts, and other "near monies." 4. How is money created? How can you create some, seemingly out of thin air? Money is created every time a person makes a deposit to a bank. The bank keeps some of it on hand and loans out much of the rest. When this money is redeposited, it adds to the money supply. 5. Who controls the money supply in the United States? The Federal Reserve System controls the money supply in the United States. 6. What are the tools to control the money supply? The three main tools the Fed can use to control the money supply are: changing the reserve requirement, changing the discount rate, or conducting open market operations....
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This note was uploaded on 09/14/2009 for the course ECON 304L taught by Professor Staff during the Fall '07 term at University of Texas at Austin.

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