16-1. Explain the four characteristics of money.

The four characteristics of money include: being portable, divisible, durable, and having
stable value.

16-2. What are the components of M-1 and M-2?

M1 consists of paper money and metal coins (cash), checks, and funds in checking
accounts. M2 consists of M1 plus time deposits, money market mutual funds, and
savings accounts.

16-3. Explain the roles of commercial banks, savings and loan associations, credit
unions, and nondeposit institutions in the U.S. financial system.

Commercial banks accept deposits, make loans, earn profits, and pay interest and
dividends. Savings and loan associations operate like banks, but they encourage saving
habits and provide financing for homes. Credit unions promote careful management of
money or resources and provide its members with a place to save and borrow.
Nondeposit institutions include: pension funds that provide retirement income for
members, insurance companies that earn money from premiums charged for coverage
and pay for insured losses, finance companies that make loans to businesses and
consumers and are willing to take higher risks at higher interest rates, and security
investment dealers that buy and sell stocks and bonds for their clients and themselves.

16-4. Describe the structure of the Federal Reserve System.

The Federal Reserve consists of: a board of governors that controls the money supply
and works with other members of the Fed to set discount rates and handle sales and
purchases of government securities, the reserve banks that hold reserve deposits and
sets discount rates for its geographic region, the open market committee that is
responsible for managing the nation’s money supply and promote economic stability,
the member banks that include all nationally chartered commercial banks and some
state chartered banks, and other depository institutions that are subject to federal
regulations.