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Chapter 12 Assignment Eco

Chapter 12 Assignment Eco

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Published by: seanfaria on Sep 09, 2010
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Sean FariaSean.faria001Eco 201307/16/2010Chapter 12 Assignment1.
 
a.
 
Money is used as a medium of exchange for goods and services, as a unit of account forexpressing price, and as a store of value.b.
 
People will only accept money in exchange for goods and services and for the work theyperform if they can be reasonably certain that the medium of exchange money willretain its value until they are ready to spend it. In runaway inflations of the thousands ortens of thousands of percent a year, people revert to barter. Again, drastic inflationgreatly reduces moneys use as a measure of value, for it is impossible to adjustinstantaneously all prices strictly in line with their relative values. Thus, opportunitiesare afforded to speculators to profit at the expense of the less sophisticated who,eventually, will learn to distrust moneys usefulness as a measure of value. Finally, andmost obviously, moneys usefulness as a store of value is destroyed in a drastic inflation.The .rule of 70 is instructive here. By dividing the absolute inflation rate into 70, one canestimate how long it takes ones dollar savings to lose half their purchasing power. At 7percent inflation, the dollar will be worth half as much in ten years.
 
c.
 
The market value of the constituent metal within a coin, and the market value is theprice that a coin will fetch in the marketplace. For most coins in circulation this value iscoincident with the face value.2.
 
a.
 
The Fed Chair is selected by the President of the United States and confirmed by theSenate.b.
 
The U.S. banking system consists of 12 Federal Reserve banks, with each one servingmember banks in its own district. This system, supervised by the Federal Reserve Board,has broad regulatory powers over the money supply and the credit structure.c.
 
The Federal reserve bank of Atlanta I reside in. The other districts are Kansas City,Dallas, and Atlanta.d.
 
The seven board members have long terms.14 Years and are staggered so that onemember is replaced every 2 years. The president selects the chairperson and vice-chairperson of the board from among the members, and they serve 4-year terms.Several entities assist the Board of Governors in determining banking and monetarypolicy. The Federal Open Market Committee is the most important, voting on the Fedsmonetary policy and directing the purchase or sale of government securities. Five of thepresidents of the Federal Reserve Banks have voting rights on the FOMC each year,rotating the membership among the 12 banks, except for the president of the New YorkFed who has a permanent voting seat.3.
 
a.
 
The 12 Federal Reserve Banks are central Banks whose policies are coordinated by theBoard of Governors. They are quasipublic banks, meaning that they are a blend of 
 
private ownership and public control. They are also bankers banks in that they performessentially the same functions for banks and thrifts as those institutions perform for thepublic.b.
 
The Federal Reserve performs 7 basic functions:i.
 
The Fed issues Federal Reserve Notes, the paper currency used in the U.S.monetary system.ii.
 
The Fed sets reserve requirements and holds the mandated reserves that arenot held as vault cash.iii.
 
The Fed lends money to banks and thrifts.iv.
 
The Fed provides for check collection.v.
 
The Fed acts as fiscal agent for the Federal government.vi.
 
The Fed supervises the operation of all U.S. banks.vii.
 
The Fed has responsibility for regulating the supply of money, and this in turnenables it to affect interest rates.c.
 
The most important basic function is the seventh function, the Fed has responsibility forregulating the supply of money, and this in turn enables it to affect interest rates.4.
 
a.
 
A debit card withdraws money directly from your checking account with no annual feesor finance charges, whereas a credit card is a loan against a predetermined line of credit.b.
 
Stored-value card: A card similar in size to a credit card that stores information witheither a computer chip or a magnetic stripe. Consumers buy the cards with prepaidvalue stored on them. The most common uses today are for telephone calls and storegift cards.

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