Banking hw chapter 2

Banking hw chapter 2 - decrease , the value of money rises....

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Laura Dyer February 2, 2011 Chapter 2 Questions: 2.1, 2,3,5,6,8 2.1 Which definition of money supply, M1 or M2, is most appropriate if the most important function of money is its role as medium of exchange? Why? M1 is the most appropriate definition to describe money as the most important function as its role of medium exchange. M1 equals the money supple which out of M1, M2, and M3 is most easily liquidated. 2.2 What are the most important characteristics of a good medium of exchange? The most important characteristics are something that can be turned into a generally acceptable medium of exchange, without loss of value. Currency and checking accounts are most liquid assets. 2.3 Explain why the value of money is inversely related to the price level. The value of money varies inversely with the general level prices. When the general prices increase, the value of money falls and when general prices
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: decrease , the value of money rises. In mathematical terms the value of money and the general level of prices are reciprocals of each other. 2.5 Is inflation clearly due to too much money? Not necessarily, inflation can only occur when there is an increase in the money supply, however; but it is not a sufficient condition. Economic growth and employment effect inflation. 2.6 Prices have roughly quadrupled in the last 30 years. If they do the same over the next 30, how much will it cost annually to go to your college 30 years from now? The cost of Monmouth University in 30 years will probably cost 50-60 k. 2.8 If a country were to adopt U.S. dollars as its own currency, how would the U.S. money supply be affected? Just because another was to adopt the U.S. currency, it would increase the money supply yet it would lower the value of currency....
View Full Document

Ask a homework question - tutors are online