31.1 What
are the three basic functions of money? Describe how rapid inflation
can undermine money’s ability to perform each of the three functions.
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31.2 Which two of the following financial institutions offer checkable deposits included within the M1
money supply: mutual fund companies; insurance companies; commercial
banks; securities firms; thrift Institutions? Which of the following
items is not included in either M1 or M2:
currency held by the public; checkable deposits; money market mutual
fund balances; small-denominated (less than $100,000) time deposits;
currency held by banks; savings deposits?
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31.3 What are the components of the M1 money supply? What is the largest component? Which of the components of M1 is legal tender? Why is the face value of a coin greater than its intrinsic value? What near-monies are included in the M2 money supply?
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31.4 Explain and evaluate the following statements:a.
The invention of money is one of the great achievements of humankind,
for without it the enrichment that comes from broadening trade would
have been impossible.b. Money is whatever society says it is.c. In the United States, the debts of government and commercial banks are used as money.d.
People often say they would like to have more money, but what they
usually mean is that they would like to have more goods and services. .e. When the price of everything goes up, it is hot because everything is worth more but because the currency is worth less.f. Any central bank can create money; the trick is to create enough, but not too much, of it.
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31.5 What
“backs” the money supply in the United States? What determines the
value (domestic purchasing power) of money? How does the purchasing
power of money relate to the price level? Who in the United States is responsible for maintaining money’s purchasing power?
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31.6 How
is the chairperson of the Federal Reserve System selected? Describe the
relationship between the Board of Governors of the Federal Reserve
System and the 12 Federal Reserve Banks. What is the purpose of the
Federal Open Market Committee (FOMC)? What is its makeup?
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31.7 The
following are two hypothetical ways in which the Federal Reserve Board
might be appointed. Would you favour either of these two methods over
the present method? Why or why not?a.
Upon taking office, the U.S. president appoints seven people to the
Federal Reserve Board, including a chair. Each appointee must be
confirmed by a majority vote of the Senate, and each serves the same
4-year term as the president.b.
Congress selects seven members from its ranks (four from the House of
Representatives and three from the Senate) to serve at congressional
pleasure as the Board of Governors of the Federal Reserve System.
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31.8 What is meant when economists say that the Federal Reserve Banks are central banks, quasi-public banks, and bankers’ banks?
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31.9 Why
do economists nearly uniformly support an independent’ Fed rather than
one beholden directly to either the president or Congress?
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31.10 Identify three functions of the Federal Reserve -of your choice, other than its main role of controlling the Supply of money.
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31.11 How
do each of the following relate to the financial crisis of 2007-2008:
declines in real estate values, subprime mortgage loans, mortgage-backed
securities, AIG.
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31.12 What
is TARP and how was it funded? What is meant by the term “lender oflast
resort” and how does it relate to the financial crisis of 2007-2008?
How do government and Federal Reserve emergency loans relate to the concept of moral hazard?
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31.13 What
are the major categories of firms that make up the U.S. financial
services industry? Are there more or fewer banks today than before the
start of the financial crisis of 2007-2008? Why are the lines between
the categories of financial firms even more blurred than they were
before the crisis? How did the Wall Street Reform and Consumer
Protection Act of 2010 try to address some of the problems that helped
cause the crisis?
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31.14 LAST WORDHow
does a debit card differ from a credit card? How does a stored-value
card differ from both? Suppose that a person has a credit card, debit
card, and stored-value card. Create a fictional scenario in which
the person uses all three cards in the same day. Explain the person’s
logic for using one card rather than one of the others for each
transaction. How do Fedwire and ACH transactions differ from credit
card, debit card, and stored-value card transactions?
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