Chapter 30 Homework- The Monetary System

Chapter 30 Homework


What do we mean when we say, "money is whatever society says it is?"
Anything with ‘use value’ and ‘exchange value’ can be accepted by the public as means of payment. 




Describe the components of M1, M2 and M3. In general, how do they differ?M1- cash and checking account deposits (measures all currency in circulation)
M2- M1, small deposits, saving accounts and money market accounts (step higher than M1 and less liquidity)
M3- M1 and M2, large deposits, other large long term deposits (step higher than M2 and even more less liquidity)






What is "the Fed" and its main purpose?
The Fed is the Federal Reserve System, the central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. It's 2 main functions are to regulate banks and ensure the health of the banking system and to control the quantity of money that is made available in the economy called money supply.




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.


Which demonstration did you choose and why?
I chose the Inflation Fairy to give me a better understanding of how inflation works because that is one of the terms I least understand. 
Give a general description of your volunteers - approx age, gender, etc.
My Dad- age 55, male 
My Friend- age 21, male, teammate
How did the demonstration go overall?
Well my Dad and my teammate are both smart when it comes to economics, so they understood the overall concept of the demonstration. 
Did the volunteers seem to understand the concept being demonstrated? Why or why not?
They did understand the concept being demonstrated. Showing how people are affected if everything doubled, was a good way to prove how it wouldn't affect them. It made the explanation of, who are the winners and losers of inflation, easier. 
Add any other comments you feel are relevant.


Did you enjoy this exercise and did you learn anything new by performing the demonstration? Why or why not?
I understand inflation better than I originally did. Showing the who are the winners and losers of inflation helped me understand the concept of inflation better than how I known it before. I also learned that doubling everything, will do nothing to the economy.