1. Review of Money/Banking/Federal Reserve

2. What backs the U. S. money supply
What backs the U.S. money supply? What determines the value of the dollar?
Nothing but the ability of the Fed to keep the money supply stable (not print too much and cause inflation). No gold or silver backs the money supply
It’s buying power.
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3. What are the three jobs of money and what job do they perform?
Medium of Exchange: Buying things
Unit of Account/Standard of Value: Tells how much things cost
Store of Value: Holding money for future use (hopefully investing it!)
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4. What does Asset Demand involve
What does Asset Demand involve? What does the Asset Demand Curve look like? Why?
Money held as an asset such as gold or silver. It is cash that earns little or no interest.
The Asset Demand Curve has an inverse relationship between the quantity of money held as a non-interest bearing asset and nominal interest rates. It slopes downward.
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5. What is the largest measure of the money supply. Why
What is the largest measure of the money supply? Why? What job does it perform? M3
because it includes M2 (& M1)
Store of value.
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6. What is the smallest measure of the money supply
What is the smallest measure of the money supply? What job does it perform? M1
Medium of Exchange.
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7. What is the main determinant of the Transactions Demand for Money
What is the main determinant of the Transactions Demand for Money? What type of relationship is this, direct or inverse? Why?
The level of Nominal GDP.
This is a direct relationship.
Because when prices of products increase, people need more money for daily purchases.
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8. What is the most important job of the Federal Reserve?
Monetary Policy.
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9. Why can the Fed make independent economic decisions that are good for the long-term health of the economy?
Because they are not elected officials. They are trained economists whose job is to ensure economic stability of the U.S. economy. Also, many, like the Chairman and members of the Board of Governors/Federal Open Market Committee, serve long terms.
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