Money and Banking (1)A+ Exam Solutions
2024
3 Functions of Money - ANS-Medium of exchange (payment), store of wealth (retain its
value overtime), and unit of account (used to price goods).
Liquid Asset - ANS-asset that can be turned into a generally acceptable medium of
exchange, without loss of value
The most liquid asset - ANS-Currency
M1 - ANS-Currency outside of banks, plus checking accounts (demand deposits)
M2 - ANS-M1 + Savings (CD's, money market deposits, retail money market mutual
funds)
M3 - ANS-M2 + big deposits and Eurodollar
Credit Cards - ANS-Basically acts as a purchasing loan, and should not be considered
as part of the money supply
Central Bank (Federal Reserve System) - ANS-does not deal directly with the public
banker's bank and is responsible for execution of national monetary policy. They have
12 district FR banks and the Board of Governors is located in D.C.
Control of Money Supply - ANS-the fed influences the total money supply, but not the
fraction of money between currency and demand deposits which is determined by
public preference
Implementation of Money supply - ANS-The fed alters money supply and influences
bank behavior. If the Fed wants to increase the money supply with open-market
operations, they will buy government securities from the public.
Barter - ANS-direct exchange of goods and services. Very inefficient and limited
economy.
Money - ANS-Prices, expressed in money terms, permit comparison of values between
2024
3 Functions of Money - ANS-Medium of exchange (payment), store of wealth (retain its
value overtime), and unit of account (used to price goods).
Liquid Asset - ANS-asset that can be turned into a generally acceptable medium of
exchange, without loss of value
The most liquid asset - ANS-Currency
M1 - ANS-Currency outside of banks, plus checking accounts (demand deposits)
M2 - ANS-M1 + Savings (CD's, money market deposits, retail money market mutual
funds)
M3 - ANS-M2 + big deposits and Eurodollar
Credit Cards - ANS-Basically acts as a purchasing loan, and should not be considered
as part of the money supply
Central Bank (Federal Reserve System) - ANS-does not deal directly with the public
banker's bank and is responsible for execution of national monetary policy. They have
12 district FR banks and the Board of Governors is located in D.C.
Control of Money Supply - ANS-the fed influences the total money supply, but not the
fraction of money between currency and demand deposits which is determined by
public preference
Implementation of Money supply - ANS-The fed alters money supply and influences
bank behavior. If the Fed wants to increase the money supply with open-market
operations, they will buy government securities from the public.
Barter - ANS-direct exchange of goods and services. Very inefficient and limited
economy.
Money - ANS-Prices, expressed in money terms, permit comparison of values between
