Economics 310 Money and Banking Assignment 1

1.
Explain the functions of money and the problems of barter that each overcomes.

2.
The payment system has evolved from commodity money to fiat money to checks to
electronic money. Discuss one advantage and one disadvantage of each form of money.

3.
Order the following commodities by their usefulness as money. Explain why each is or is
not used as a means of payment.
a. Shells
b. Furniture
c. Oranges
d. Wine
e. Treasury Bills.

4.

How do central banks, like the U.S. Federal Reserve, contribute to the welfare of a society?

Countries that are economically stable tend to grow faster than those with an unstable
business cycle. Why is this? How can the central bank improve conditions in the unstable
countries?

6
Explain the difference between direct and indirect finance. What role do financial
intermediaries and financial markets play in this process? Explain whether direct or indirect
finance is a more important source of funds and why this is the case. Give at least one
example of each – a direct finance transaction and an indirect finance transaction – in which
you personally can engage in.