Q1. Discuss the most important characteristic of money.
A1. The most important characteristic of money is acceptability. This is why money is the most common medium of exchange.
Q2. What is a mutual fund?
A2. A mutual fund pools investors’ money and invest them in securities. A mutual fund helps those who lack the time or financial sophistication to invest their money wisely.
Q3. Define monetary policy and list what tools the Federal Reserve has available for use if the money supply grows too quickly for too long.
A3. Monetary supply refers to the Fed’s actions taken to control the available amount of money in the economy. The tools that the Federal Reserve has available for use if the money supply grows too quickly for too long are the open market operations, reserve requirement, discount rate, and the credit controls.
Q4. Discuss what coverage the Federal Deposit Insurance Corporation (FDIC) provides to banking institution.
A4. The coverage provided by the Federal Deposit Insurance Corporation (FDIC) to the banking institutions is the insurance fund that insures all individual bank accounts and savings accounts in member banks up to a $100,000 per individual account.
Q5. Credit cards have become quite popular as a substitute for money. Why?
A5. Credit cards have become quite popular as a substitute for money for numerous reasons which include convenience, easy access to funds, wide global acceptability, and flexibility in paying off the purchases.
Assignment 2: In the Lecture and in the textbook, the statement is made that Banks create money. Who grants the banks the ability to create money? Is actual money created? Think how the textbook and the lecture describe the creation of the Total Supply when answering the question “Is actual money created?”
The central government gives the central bank the authority to control the supply of money in the economy. Money creation doesn’t have to involve the actual printing of money. Money is created by both the central bank and the commercial banks. In the U.S. Fed has the responsibility to monitor the amount of money flowing in the economy. The Fed strives to ensure that the economic fluctuations are minimized and one way to do that is to balance the supply and demand of money.
The Fed prints the physical currency that circulates in the economy but the physical currency is usually always less than the actual money supply in the economy. Commercial banks create non-physical money through borrowing and lending. In addition to coins and currencies, money is also created in other manners including time deposits, travelers’ checks, demand deposits, saving deposits, institutional money markets funds, and other money market funds