1. Commodity Money - Commodity money is money backed by its actual value. The object has worth because of its material. Items such as gold or silver would be considered commodity money because gold and silver have a value that is not held by faith.
2. Fiat Money - Fiat money is currency established by a government or law. Fiat money does not hold actual value. U.S tender is worth the number printed on the bill because we have faith that it will hold true. If citizens did not have faith that the bills held true then the money would have no value because it is only paper. Fiat money has no intrinsic value. This means that if the government fell apart we would have to buy and sell with commodity money rather than fiat money. This is because fiat money only works if it has a …show more content…
List and discuss at least four of the functions of the Federal Reserve Bank.
1. Oversee all the banks - The Federal Reserve System provides services to its member banks that in some respects are like the services banks provide to us. The member banks create their own accounts at the Fed, allowing them to deposit and withdraw their funds on demand. They can even borrow from the Fed, just as we borrow from banks. The Fed provides them with check clearing services and currency.
2. Controlling the interest rate - If a bank finds that it is short of the amount of money the Fed requires it to hold, than it can borrow money from other banks that are in excess of what they owe to the Fed. The federal funds rate is the price that the other bankers charge the banks they are loaning the money to. To lower this rate the Fed can buy government securities on the open market. The Fed will pay the banks for these securities so that the deposits a the Fed increase and the demand pressure falls. To raise the rate
3. The Fed controls the money supply- The Fed controls the supply of money to affect the economy's price level, interest rates, and level of employment. The Fed does this to create price
2. Fiat Money - Fiat money is currency established by a government or law. Fiat money does not hold actual value. U.S tender is worth the number printed on the bill because we have faith that it will hold true. If citizens did not have faith that the bills held true then the money would have no value because it is only paper. Fiat money has no intrinsic value. This means that if the government fell apart we would have to buy and sell with commodity money rather than fiat money. This is because fiat money only works if it has a …show more content…
List and discuss at least four of the functions of the Federal Reserve Bank.
1. Oversee all the banks - The Federal Reserve System provides services to its member banks that in some respects are like the services banks provide to us. The member banks create their own accounts at the Fed, allowing them to deposit and withdraw their funds on demand. They can even borrow from the Fed, just as we borrow from banks. The Fed provides them with check clearing services and currency.
2. Controlling the interest rate - If a bank finds that it is short of the amount of money the Fed requires it to hold, than it can borrow money from other banks that are in excess of what they owe to the Fed. The federal funds rate is the price that the other bankers charge the banks they are loaning the money to. To lower this rate the Fed can buy government securities on the open market. The Fed will pay the banks for these securities so that the deposits a the Fed increase and the demand pressure falls. To raise the rate
3. The Fed controls the money supply- The Fed controls the supply of money to affect the economy's price level, interest rates, and level of employment. The Fed does this to create price