Principles of Economics- Mankiw (5th) 593

Principles of Economics- Mankiw (5th) 593 - CHAPTER 27 T H...

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CHAPTER 27 THE MONETARY SYSTEM 613 currency is not a particularly good way to hold wealth. Not only can currency be lost or stolen, but it also does not earn interest, whereas a bank deposit does. Thus, most people hold only small amounts of currency. By contrast, criminals may avoid putting their wealth in banks, because a bank deposit gives police a paper trail with which to trace their illegal activities. For criminals, currency may be the best store of value available. QUICK QUIZ: List and describe the three functions of money. THE FEDERAL RESERVE SYSTEM Whenever an economy relies on a system of fiat money, as the U.S. economy does, some agency must be responsible for regulating the system. In the United States, that agency is the Federal Reserve, often simply called the Fed. If you look at the top of a dollar bill, you will see that it is called a “Federal Reserve Note.” The Fed is an example of a central bank —an institution designed to oversee the banking system and regulate the quantity of money in the economy. Other major central
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