Unit 9: Functions of Money

What’s in This Chapter? Is money, or the love of money, the root of all evil? Should we eliminate money? If we eliminate money, will all evil disappear? If we eliminate money, what economic consequences will this have? Are...

Is Money the Root of All Evil? Is money or the love of money the root of all evil? Some people claim this to be true. Would people still commit crimes in an economy without money though? The answer is “yes”. Some...

Money in Circulation In the United States, the Federal Reserve System and its twelve central banks are responsible for the circulation of money. In most other countries, a single central bank controls the amount of money in...

The Federal Reserve System The Federal Reserve (the Fed) System in the United States is a system of federal overseeing agencies, committees, and banks. The system was created in 1913, and its original purpose was for the Fed to...

Federal Reserve Tools to Affect the Money Supply The Federal Reserve changes the bank reserves and the money supply of the United States by way of the following three tools. 1. Open Market Operations. Open Market Operations is...

A Bank’s Balance Sheet To understand banks’ reserve requirements and fractional reserve banking, let’s study a bank’s balance sheet. The table below includes entries for a hypothetical bank’s assets...

Changes in the Nation’s Money Supply Let’s assume that banks hold on to 20% of all deposits. This means that a new deposit of $1,000 will allow a bank to loan out $800. This $800 will be spent, then received by...

The Role of the FDIC Most countries’ governments have a deposit insurance agency that insures customers’ bank deposits. In the United States the Federal Deposit Insurance Corporation was created in 1933 during the...

Velocity Velocity is defined as the average number of times a unit of the money supply (for example M-1) is used for certain economic transactions during a specified period of time. If a nation’s money supply is $100 and...

  Time limit: 0 Quiz-summary 0 of 10 questions completed Questions: 1 2 3 4 5 6 7 8 9 10 Information This is a ten question multiple-choice quiz covering the material in this Unit. I hope you do well! You have already...