Ch11 - The Monetary System Chapter 11 You are required to read the article"Monetary Policy An Introduction posted on Aplia The purpose of Chapter

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The Monetary System, Chapter 11 You are required to read the article “Monetary Policy: An Introduction” posted on Aplia. The purpose of Chapter 11 is to help students develop an understanding of what money is, what forms money takes, how the banking system helps create money, and how the Federal Reserve controls the quantity of money. An understanding of money is important because the quantity of money affects inflation and interest rates in the long run, and production and employment in the short run. By the end of this chapter, students should understand: what money is and what functions money has in the economy. what the Federal Reserve System is. how the banking system helps determine the supply of money. what tools the Federal Reserve uses to alter the supply of money. Also note: The federal funds market is elaborated upon in the Workbook. The federal funds market is also called the market for reserves or the market for bank reserves. Checkable deposits are also called demand deposits or transaction accounts Practice Questions, page 80 1a.What are the three functions of money? In text and in page 69, Workbook b. In each of the following cases, indicate what item serves as money and what function it performs. i. Citizens of Yap accept rocks because rocks can be used to save up purchasing power. Rocks function as a store of value. ii. The prices of all goods and services are measured in terms of beads. Beads function as a unit of account iii. People accept corn in return for a good in order to use it as payment for future exchanges. Corn functions as a store of value. iv. Luiza pays for a haircut with a $20 bill. Paper currency (cash) functions as a medium of exchange v. Sandra stashes her tips from her waitressing job into a cookie jar. Currency (cash) functions as store of value 1
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Question 2, page 80 2. Use the information below to answer questions a–f. a. If Washington Mutual (WM) has a no excess reserves, what is the required reserve ratio? WM’s reserves = $20,000 + $40,000 = $60,000 The required reserve ratio = Reserves ÷ Checkable Deposits = $60,000 ÷ $500,000 = 12% b. Suppose a wealthy customer withdraws $10,000 from her checking account at Washington Mutual. Show this transaction in the balance sheet above
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This note was uploaded on 05/10/2010 for the course ECON 220 taught by Professor Ramoo during the Spring '10 term at Diablo Valley College.

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Ch11 - The Monetary System Chapter 11 You are required to read the article"Monetary Policy An Introduction posted on Aplia The purpose of Chapter

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