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What are the functions of money? Why do banks exist? What does the Federal Reserve do?...

  • What are the functions of money?
  • Why do banks exist?
  • What does the Federal Reserve do?
  • What is the maximum extent that the money supply changes when the Federal Reserve instigates a monetary policy action? (short answer)
  • Explain the features of the federal deposit insurance. (short answer)
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Answer #1

1. Three main functions of money are:

i) Medium of exchange : Anything will be called money if it determines the value during the exchange of goods and services.

ii) Unit of account : it is a standard numerical unit of measurement that compares the market value of goods and services and transactions.

iii) Store of value : Money will be served as the store of value if it keeps it's value when it is stored rather than used. To act as a store of value, the value of money must remain stable over time and when it is retrieved, it must be usable as a medium of exchange.

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