Purchase Solution

Commodity money and fiat money

Not what you're looking for?

Ask Custom Question

Dear OTA: Could you please answer the following questions on monetary policy to better help me understand economics.
Thank you very much!

Question 1:
Describe the differences between commodity money and fiat money, making sure to explain what makes fiat money work.

Question 2:
Define and explain the money multiplier. Identify the change to the money supply in the following situation: The required reserve ratio is 12.5 percent and the Fed increases the monetary base by $100.

Question 3:
Describe the monetary policy tools the Fed can use to affect the monetary base.

Question 4:
Compare and contrast expansionary and contractionary monetary policies.

Question 5:
Identify and describe the means by which the Fed can affect the money multiplier. How do changes in policy carry through to the economy?

Purchase this Solution
Solution Summary

The expert describes the differences between commodity money and fiat money, making sure to explain what makes fiat money work. Money multipliers are defined.

Solution Preview

Please refer to the attachment.

monetary policy
Dear OTA: Could you please answer the following questions on monetary policy to better help me understand economics.
Thank you very much!!!!
Credit Value: 11 Deadline: March 17, 2008, 9:45 pm

Question 1:
Describe the differences between commodity money and fiat money, making sure to explain what makes fiat money work.

Commodity money is money whose value comes from a commodity out of which it is made. Examples of commodities that have been used as mediums of exchange include gold, silver, copper... etc.
Fiat money is the currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Fiat money is based solely on faith. Most of the world's paper money is fiat money. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation's paper currency, the money will no longer hold any value.
Therefore, the major differences between commodity money and fiat money is that the former has a material value, and the latter has no material value.

Question 2:
Define and ...

Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

View More Free Quizzes
Related BrainMass Solutions

  • Three Basic Demands for Money

    Fiat money is the most common form of money today. Fiat money performs all the functions of money; namely it is a store of value, it is a unit of account, it is the medium of exchange, and a standard of deferred payment.

  • The bail out money given to the car companies GM and Chrysle

    C - A store of value, which is a recognized form of exchange that can be in the form of money or a commodity, which has the ability to be saved and retrieved at a later time (just like money does).

  • Financial Markets and Risk in Capital Marketing

    There is the fractional money that partially backed by a commodity and has fiat money transaction aim. If the commodity that makes such money loses value the money converts to fiat money.

  • velocity theory of money and price level

    Abandon fiat money, and go to a gold standard; b. Use fiat money, abandon the gold standard, and have a Central Bank that is active; c.

  • Marketing strategy of Fiat

    Fuel prices are rising and consumers are looking for strong value proposition and hence, Fiat should focus on the "value for money" aspect strongly to gain market share in the US markets.

  • Banking and Exchange Rates

    The value of fiat currency is determined by the demand for the money and its supply, as opposed to the physical material that the money is made of. Fiat currency by itself has no value, other than that which the government prints on it.

  • The Gold Standard and Foreign Exchange Markets Summary

    Finally, many countries have established long and sound reputations with fiat money -- Switzerland, Japan and the U.S., for example.

  • Gold "the ultimate burglar alarm."

    Governments "burgle" holders of their currencies by printing more money and subjecting holders to an "inflation tax."

  • Questions relating to the money and the macroeconomy

    Money that has value apart from its use as money is ? Commodity money 7. Fiat money is ? A medium of exchange whose value derives entirely from its official government status as a means of payment 8.

View More Related Solutions