Monetary system

Question 1

what are three functions of money?

Answer 1

1. Medium of exchange
2. unit of account
3. stored value

Question 2

what are kinds of money??

Answer 2

1. commodity money(intrinsic value..eg.gold)

2. fiat money(without intrinsic value..because of government decree)

Question 3

two candidates for money supply?

Answer 3

1. currency
2. demand deposit.

money supply=currency + deposit

Question 4

Money multiplier?

Money multiplier=1/R

Answer 4

it is the amount of money that the bank generates on its dollar

Question 5

how does central bank influence Reserves??

Answer 5

1. open market operation
   central bank sells government bonds, decreases reserve and money supply
2. setting discount rate.
   cental discount interates rate, increases the commercial banks loan from central bank, makes more reserves for a commercial bank to loan
3. adjusting the reserve requirement
   central banks have the final say on a reserve requirement by banks