What are the three functions of money? Which function is the defining characteri

Question

What are the three functions of money? Which function is the defining characteristic? How is the discount rate different from the federal funds rate? Consider the balance sheet for the Wahoo bank as presented below. Using required reserve ratio of 10% and assuming that the bank keeps no excess reserves, write the changes to the balanced sheet for each of the following scenarios: Bennett withdraws $200 from his checking account. Roland deposits $500 into his checking account. The Feb buys $ 1,000 in government securities from the bank. The Fed sells $1,500 in government securities from the bank. Using a required reserve ratio of 10% and assuming that banks keep no excess reserves, which of the following scenarios produces a larger increase in the money supply, explain why. Someone takes $1000 from under his or her mattress and deposits it into a checking account. The Fed purchases $1,000 in government securities from a commercial bank.

Explanation / Answer

Sol 1>

a. Medium of exchange: Money can be used for buying and selling goods and services. Without money goods would have to be exchanged through the process of barter, exchnage of goods with goods. Also, the buyer and seller need to be willing to buy and sell at the same time for barter to occur. But Money eliminates the need of the double coincidence of wants.

2. Unit of account: Money is the common standard for measuring relative worth of goods and service.

3. Store of value: Money is the most liquid asset Money’s value can be retained over time. It is a convenient way to store wealth.

Medium of exchange function of money is the defining characteristic.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.