Основы экономики. Земскова Л.П. - 14 стр.

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14
PROBLEMS
1. Suppose actual output is 100, households’ planned consumption at this level
of income is 70, and planned investment is 45. Is there excess supply of or
excess demand for goods at this point, and how much?
2. What would happen if people decide to save a larger proportion of their
income?
3. Suppose people’s incomes increase. Describe possible changes in
consumption, saving, and output.
LECTURE 6. MONEY AND BANKING
1. Money has four functions: a medium of exchange, a store of value, a
standard of deferred payment, and a unit of account. The distinguishing
function of money is that of a medium of exchange.
2. Money facilitates exchange because it dispenses with the need for a double
coincidence of wants. In a monetary economy trading is simplified because
there is no need for a seller to find a buyer who has what he wants and wants
what he has.
3. There are several kinds of money. Commodity money is a good that has the
same value as a monetary unit and as a commodity. Token money, by
contrast, is a good that has a larger value as a money than as a commodity.
Paper money, for example, is a token money. IOU monies are debts of
financial institutions, such as demand deposits, which are a liability of the
bank that is obliged to pay out currency on the demand of the depositor.
4. Token money is accepted either because people believe that they can in turn
use it to make payments or because the government has specifically declared
it to be legal tender.
5. The story of the goldsmith-banker illustrates the role of modern banks.
Goldsmiths who make loans create money. They do so by releasing into
circulation gold previously held in vaults. The choice of how much reserves
to hold involves a trade-off between profitability and solvency. Too much
lending leaves the goldsmith unable to meet calls for gold; too little means no
profits.
6. Because the goldsmith-bankers held less than 100 percent reserves, they were
always vulnerable to a run as depositors all tried to get their gold out before
the next person. Such runs could lead to financial panics.
7. Modern commercial banks are profit-making financial intermediaries. They
attract funds through deposits or borrowing and use the funds to make loans.
8. In the USA banks hold less than 10 cents of reserves for every dollar of
deposit liabilities. Like the goldsmiths, banks create money when they make
loans. They do so either by reducing their cash reserves or by increasing their
deposits.

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