Key Questions

Chapter 31: Money and Banking

Key Questions

1. What are the components of the M1 money supply? What is the largest component? Which of the components of M1 is legal tender? Why is the face value of a coin greater than its intrinsic value? What near-monies are included in the M2 money supply?

2. Suppose the price level and value of the dollar in year 1 are 1 and $1, respectively. If the price level rises to 1.25 in year 2, what is the new value of the dollar? If, instead, the price level falls to .50, what is the value of the dollar? What generalization can you draw from your answers?

3. What is meant when economists say that the Federal Reserve Banks are central banks, quasi-public banks, and bankers' banks? What are the seven basic functions of the Federal Reserve System?

Chapter 31 Key Question Solutions (29.0K)