Brandon Vasciannie TA: Tirgil Recitation 21

Homework for Chapter 14

List and briefly explain the advantages that money has over barter? How do the three functions of money get around the problems of barter?

1) Money is a medium of exchange, allowing it to be used to buy any of the items available in the market. Barter on the other hand exchanges items for other items, and these items are limited in what they can be traded to get. 2) Money is also a unit of account. Societies use monetary units such as dollars in an effort to measure the worth of a wide array of goods, services, and resources. In the barter system it is a lot harder to place a price on one object and the value of another item that will be exchanged for it. 3) Money is a store of value that allows people to transfer purchasing power from the present to the future. However, in the barter system the value of each particular item can vary and change over time.

What backs our money? What is important about that?

The money supply in the United State is backed by the government’s ability to keep the value of money relatively stable. This is important because the purchasing power of the U.S. dollar is in the government’s hand and can fluctuate.

Why is the supply of money in an economy so important?

Money derives its value from its scarcity relative to its utility. Therefore, the economy’s demand for money depends on the total dollar volume of transactions in any period plus the amount of money that is held for future transactions.

List and briefly describe the 7 functions of the FED.

1) Issuing currency- Federal Reserve Banks issue Federal Reserve Notes 2) Setting reserve requirements and bolding reserves- set the fractions of checking account balances that banks must maintain as currency reserves 3) Lending to financial