Mba- Money

Topics: Currency, Federal Reserve System, Money, Money supply / Pages: 2 (400 words) / Published: Sep 29th, 2012
Chapter 14 -DQ
-Even numbered problems 2-10 at the end of the chapter

2. Could each of the following items potentially serve as money? Consider each as (1) a medium of exchange, (2) a unit of account, and (3) a store of value.
a. Visa credit card
It is not money because it fails the store of value test.
b. Federal Reserve note
Yes it can serve as money.
c. Dog
No, it cannot be used.
d. Beer mug
No, it cannot be used.

4. What backs the US dollar? Include the distinction between commodity money and fiat money in your answer.
Commodity money is anything that serves as money while having market value in other uses. Fiat money is money accepted by law and not because of its redeemabitlity or intrinsic value. The US dollar is backed by law and that the government recognizes it as fiat money. In the past was used a s commodity money and could be exchanged for gold or silver.
6. Distinguish between M1 and M2. What are near monies?
M1 is the narrowest definition of the money supply and it only includes currency and checkable deposits. Currency is defined as coins and paper money and checkable deposits are the total of checking account balances in financial institutions convertible to currency on demand. M2 is M1 plus savings deposits and small time deposits of less than $100,000. Near monies are savings deposits plus small time deposits of less than $100,000.

8. Should the Fed be independent or a government agency subordinate to Congress and the president? The Fed should be independent of the federal government as long as they pursue policies that help the interest of the nation.
10. Briefly discuss the importance of the Depository Institutions Deregulation and Monetary Control Act of 1980. The Depository Institutions Deregulation and Monetary Control Act of 1980 is important because it gave the Federal Reserve system greater control over nonmember banks and made all financial institutions more competitive. The Act increased the authority of the

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