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Unformatted text preview: longer useful as guides to making policy; second, that these new types of deposits
2-30 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 2. THE MONEY MARKET
would alter the public's demand for money because their features differed from those of existing forms of money. For example, new types of checkable deposits, such as NOW accounts, paid interest while traditional checking accounts did not. NOW accounts provide households with a more attractive way of holding their money and, therefore, could be expected to raise their demand for money. The Federal Reserve responded to the first concern by implementing a major redefinition of the monetary aggregates in February 1980. To address the second concern, the System attempted to assess the impact of the new accounts on money demand, and to “adjust” the figures for money to take into account the change in the public's preferences for cash balances. Thus, in 1981, the Federal Reserve estimated that the nationwide introduction of NOW accounts raised the public's demand for money because now they could hold the funds in interest–bearing accounts. The actual growth in money of 5.1% for 1981 was accordingly adjusted downwards to 2.2% in recognition that part of the growth in money during the year was simply to accommodate the public's increased preferences for money. In other words, the adjusted figure was a more accurate gauge of the impact of monetary policy on the economy. CHAPTER QUIZ
1. Money is: A. B. C. D. 2. Anything that serves as a generally accepted medium of exchange Cash only Coins only Only the things backed by gold reserves Components of the money supply include: A. B. C. D. Commercial bank demand deposits Currency in circulation Coins All of the above 3. A primary source of funds for residential financing is the: A. B. Federal Home Loan Bank Federal Savings and Loan Insurance Corporation
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C. D. 4. Fe...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10