Money, Baking , and Federal Reserve System

Question 1

The standard currency in the United States is the dollar bill. Among other functions, dollars are universally accepted as a form of payment for good and services.

If you day, “My computer costs $500,” which function of money are you referring to?

Answer 1

Unit of account

Question 2

The federal reserve bank can engage in expansionary or contractionary monetary policies to pursue economic stability.

What should the federal reserve do to contact the money supply?

Answer 2

Sell US government bonds

Question 3

The federal reserve engages in policy actions that change the amount of the money supply when it wants to change interest rate.

Answer 3

Usually the federal funds rate is lower than the discount rate

The federal reserve is considered the “lender of last resorts.”

Question 4

Faced with an output gap, whether recessionary or inflationary, the federal reserve can engage in monetary policy actions, manipulate interest rates and money supply, and bring the economy back to full employment

What is the short-run effect of a decrease in supply of money?

Answer 4

It causes a decrease in both real GDP and prices level

Question 5

At times, The economy is growing to rapidly (beyond it’s full employment level), and the federal reserve intervenes with monetary policies to close the inflationary gap and restore economic stability.

In the real world, how would a contractionary monetary policy be used?

Answer 5

To combat high inflation