1. One of the functions of money is that it is a 'store of value'. Explain
2. What is the difference between fiat money and a credit card?
3. How do commercial banks maximize their stockholders' wealth?
4. The Federal Reserve System (the Fed) is the central bank of the United States. What are its primary functions?
5. Assume that the US economy is experiencing a rather severe recession. How might the Fed utilize the discount rate to speed up the economy? Explain in detail.
6. Assume that the US economy is experiencing a rather severe recession. How might the Fed utilize open market operations to speed up the economy (use lecture notes to answer this)? Explain in detail.
7. Using the explanation in the lecture, explain how the Fed's purchase of bonds (securities) on the open market can not only increase the money supply through banks' lending but also decrease the EFFECTIVE interest rate for borrowers. Use an example with actual interest rates.
8. Explain how the required reserve requirement can be used by the Fed to either expand or contract the money supply.
9. A) Using the formula given in the lecture, calculate how much the money supply would increase given an injection of $10 million with a required reserve ratio of 5%. B) Given the same data, how much would the money supply decrease if $10 million were taken out of the money supply with a 5% required reserve ratio?
10. What 3 events turned an ordinary recession in 1929 into the Great Depression?