Chapter 13
1. Why are checking account balances, but not credit cards, regarded as “money”?
Because people use bank accounts balances to buy goods and services which are regarded as cash. The reason why credit cards are not regarded as money is because they are only a payment service with no store of value in and of themselves.
2. How are an economy’s production possibilities affected when workers are paid in bras and coffins rather than cash?
It would be horrible for the economy because without money, people could not purchase or exchange their money for other goods or services. The Use of money simplifies a transaction for goods and services. Plus if people are paid by exchange of other goods or services that person may not have the need for the goods or services being exchange.
3. If you can purchase airline tickets with online computer services, should your electronic account be counter in the money supply?
How does federal deposit insurance encourage greater risk-taking by banks? Could the bank system function without government deposit insurance?
Because of the limited deposit creation by the federal government regulations the bank are limited to hold deposits or borrow money. It is also to protect the customers in case a bank fails and then the FDIC guarantees to pay deposits.
Chapter 14
1. Why do banks want to maintain as little excess reserves as possible? Under what circumstances might banks want to hold excess reserves?
First reason is that excess reserves earn no interest. A bank have a profit incentive to keep their reserves as close to their required reserve level as possible. Bank also uses excess reserves to purchase government bonds. By original the required reserve ratio, the federal s can immediately reduce the lending capacity of the banking system.
2. Why do people hold bonds rather than larger saving accounts or checking account balances? Under what circumstances might they change their portfolios, moving their funds...