Econ exam tom... please help me study?

Question

1. What is Money? Wealth? Income?

2. Define M1, M2

3. What are the three functions of money?

4. Why are the advantages of an economy using money rather than barter?

5. What is barter and what are the shortcomings of barter?

6. What is the Fed? Describe its structure. Why does the Fed have the structure it does (12

banks, etc).

7. What are the goals, tools/instruments, targets of the Fed?

8. Using T-Accounts, explain how a Fed open market purchase increases the money supply

9. What is the operating target of the Fed?

10. What is the primary policy tool of the Fed?

11. What are the ultimate goals of the Fed?

12. Is the Fed Independent? Why? How?

Answer 1

1.  Money is the set of asset usually accepted as a medium of exchange.  Wealth is the total value of someones set of assets.  Income is the amount of money/wealth one makes over a certain period of time.

2.

3.  Money is a unit of account, store of value and a medium of exchange.

4.  Using money over barter solves the problem of the double coincidence of wants.

5.  Barter is bargaining over what assets to exchange in a transaction as well as the actual transactions.  The shortcomings of barter is the need of the double coincidence of wants.

6. The fed is the body that authorize monetary policy.  

7.  The goal of the fed is to maintain the value of the medium of exchange.  That is, to control inflation. It has 3 tools, open market operations, the reserve ration and reserve requirements.

8.  

9.  The operating target of the Fed is a certain inflation rate.

10.  The primary policy tool of the Fed  is the buying and selling of bonds.

11,  The ultimate goal of the Fed is to keep inflation under control.

Answer 2

Question #4: Bartering items is cumbersome.  At some point (...and I just read about this in a book by Howard Ruff entitled, "How To Prosper During the Coming Bad Years in the 21st Century") 'currency' was established as a more convenient way to do business.

The US gov't's currency used to be backed by silver and gold at Ft. Knox (and still are), but over time they weakened that backing--and now Ruff is concerned about "cybermoney," given that less than 5% of the dollars are minted or printed, but are instead only computer entries at banks.

Quote from Ruff's 2008 book, page 15. "The Fed has recently stopped publishing key money-supply numbers (M3) without explanation."  [Bush admin].

That's all I know.  But WORRY, KIDS--it's you young people that are going to suffer....