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    US Economy Function and Regulation

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    75 words each

    Need assistance with the following:
    1. What are the three functions of money, and why are they important?
    2. What are the differences between M1 and M2?
    3. How can the Fed affect the money supply by using the discount rate?
    4. Explain how banks are financial intermediaries. What are reserves? What are excess reserves? Explain how the Fed can affect the quantity of excess reserves in the banking system.
    5. Discuss the factors that led to deregulation of U.S. financial markets in the 1980s.

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    Solution Preview

    Assistance Needed
    75 words each
    Need assistance with the following:
    1. What are the three functions of money, and why are they important?

    Money is an entity that is widely accepted in exchange for goods and services as well as payment of debts. The three functions of money are: 1) Medium of exchange; 2) Unit of account; 3) Store of value
    Medium of exchange: Money is used for buying and selling goods and services. If we imagine a world without money, then there will be no way of exchanging goods and services for something else. If there was no money, then goods would be traded for other goods in transactions arranged on the basis of mutual need. For example, if I want to buy a television, then I have to trade something else for it like a dining table. Money eliminates the need of the double coincidence of wants.
    Unit of account. Money is the common standard for measuring relative worth of goods and service.

    Store of value: Money is the most liquid asset. That is liquidity measures how easily assets can be spent to buy goods and services. Money's value can be retained over time. It is a convenient way to store wealth.

    2. What are the differences between M1 and M2?

    M1 includes currency, checkable deposits and traveller's checks. Currency and checkable deposits belonging to the federal government, Federal Reserve, and other financial institutions. It includes currency plus checkable deposits plus travelers' checks

    M2 includes all of the components of M1 plus near moneys which includes items like:
    Small time deposits that is interest earn deposits with a value of less than 100,000 and having specified maturity. It includes saving ...

    Solution Summary

    Money is an entity that is widely accepted in exchange for goods and services as well as payment of debts. The three functions of money are: 1) Medium of exchange; 2) Unit of account; 3) Store of value

    Medium of exchange: Money is used for buying and selling goods and services. If we imagine a world without money, then there will be no way of exchanging goods and services for something else.

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