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Chapter 14: Q8. (page 300)
What do economists mean when they say that the Federal Reserve Banks are central banks, quasi-public banks, and bankers鈥� banks?
By the above statement, economists imply that the Federal Reserve Bank serves the functions of a central bank, quasi-public bank, and banker鈥� bank.
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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?
Suppose the price level and value of the U.S. dollar in year 1 are 1 and $1, respectively. If the price level rises to 1.25 in year 2, what is the new value of the dollar? If, instead, the price level falls to 0.50, what is the value of the dollar?
Which of the following is not a function of the Fed?
a. Setting reserve requirements for banks.
b. Advising Congress on fiscal policy.
c. Regulating the supply of money.
d. Serving as a lender of last resort.
Explain and evaluate the following statements:
a. The invention of money is one of the great achievements of humanity, 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 not 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.
Why do economists nearly uniformly support an independent Fed rather than one beholden directly to either the president or Congress?
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