Ch. 29 & Ch. 30 Homework for Grooup C

CHAPTERS 29 & 30 | THE MONETARY SYSTEM & MONEY GROWTH AND INFLATION

1.        What do we mean when we say, "money is whatever society says it is?"

This mean that money can be whatever function society wants it to be.  May it be as a medium of exchange, unit of account, or store of value.

2.       Describe the components of M1, M2, and M3. In general, how do they differ?

M1^: (the most liquid) currency, demand of deposits, traveler’s checks, and other checkable deposits.

M2^: all the components of M1 plus assets slightly less liquid* savings deposits, small time deposits, and money market mutual funds.

M3^: all of the components of M2 plus assets even less liquid* money held at the U.S. banks abroad, institutional money market funds,

^additional information obtained from getmoneyenergy.com

*liquidity: the ease with which an asset can be converted into the economy’s medium of exchange

3.       What is "the Fed" and its main purpose?

“The Fed” or Federal Reserve is the central bank of the United States.  Its main purpose is to oversee the banking system and regulate the quantity of money in the economy

4.      Take a look at the following banking in-class demonstrations. Pick one of the three demos to perform with some friends, relatives, or other persons who owe you a favor:-) You are to act as the teacher in the demonstration and you are to attempt to teach the group the concept the demonstration is attempting to illustrate. Once the role playing is completed, answer the following questions.

1.        Which demonstration did you choose and why?

2.       Give a general description of your volunteers - approx age, gender, etc.

3.       How did the demonstration go overall?

4.      Did the volunteers seem to understand the concept being demonstrated? Why or why not?

5.       Add any other comments you feel are relevant.

6.      Did you enjoy this exercise and did you learn anything new by performing the demonstration? Why or why not?

The Inflation Fairy because for me, this demonstration was the simplest one to understand. My sister who is 34 years old and my cousin (female) who is 18 joined me in picturing the demonstration.  While all of us were able to picture the 100% inflation of everything including salaries, we were not happy about it as it does not change anything in the economy.  Even though our salary would be twice as much (as for my cousin, her allowance), everything also cost twice as much.  It is like there is no change at all.  My volunteers understood inflation because the details in the demonstration were clear with examples that are easy to understand.  We did enjoy the exercise because we were able to spend time together while learning something new in the process.