Federal Reserve Bank Functions
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Questions and Answers

What is the primary function of money according to the text?

  • To achieve economic liberation and universal prosperity
  • To regulate the economy and control the money supply
  • To provide a means of storing value and facilitating exchange
  • To facilitate economic transactions and measure the value of goods and services (correct)

    • What is one of the key characteristics of money, according to most economists?

  • It is a store of value, a medium of exchange, and a standard of value (correct)
  • It is only used for international trade
  • It is created and regulated by government
  • It is a physical factor of production

    • How does lawyer-economist Louis Kelso view money?

  • As a physical factor of production
  • As a means of regulating the economy
  • As a means of controlling the money supply
  • As a social tool for measuring values used for the exchange of property rights (correct)

    • What is the impact of contracts, private property, and credit arrangements on the economy, according to Louis Kelso?

    <p>They affect the economic system and the nature of money</p> Signup and view all the answers

    What is the relationship between money and the economy, according to the text?

    <p>Money is a yardstick for measuring economic input, output, and the relative values of goods and services</p> Signup and view all the answers

    What is currency, according to the text?

    <p>A commonly recognized determination of value, often regulated by government</p> Signup and view all the answers

    What is the primary function of money in terms of property rights?

    <p>To secure the fundamental human right to acquire private property</p> Signup and view all the answers

    What is the relationship between money and human potential, according to the text?

    <p>Money can be used to achieve economic liberation and universal prosperity</p> Signup and view all the answers

    What is the primary purpose of creating money through commercial banks and a central banking system?

    <p>To allow for the creation or cancellation of money as needed by the economy</p> Signup and view all the answers

    According to the House Banking and Currency Committee, what was the intended main way for the Federal Reserve System to create bank reserves?

    <p>Issuing promissory notes</p> Signup and view all the answers

    What is a consequence of the Federal Reserve purchasing almost no eligible paper from 1933 to 1964?

    <p>Commercial banks had limited loanable funds</p> Signup and view all the answers

    What is the role of a monetary system in the economy, according to Louis O. Kelso and Patricia Hetter?

    <p>To create claims against others or the economy as a whole</p> Signup and view all the answers

    What is a potential consequence of having too little money in the economy?

    <p>Deflation</p> Signup and view all the answers

    What was the original intention of the Federal Reserve System when it was set up in 1914?

    <p>To let the money supply grow with the needs of the economy</p> Signup and view all the answers

    What can happen when the Federal Reserve System creates or cancels money as needed by the economy?

    <p>There is never too little or too much money</p> Signup and view all the answers

    What is the relationship between the monetary system and the visible sector of the economy, according to Louis O. Kelso and Patricia Hetter?

    <p>The monetary system is a part only of the invisible sector</p> Signup and view all the answers

    What was the primary objective of monetizing 'eligible' short-term commercial paper?

    <p>To provide liquidity to sound banks in periods of stress</p> Signup and view all the answers

    What was the primary function of the Federal Reserve bank in the original design of the central banking system?

    <p>To purchase 'eligible' commercial paper from member banks</p> Signup and view all the answers

    What is the term for the process by which a commercial bank sells its qualified loan paper to the central bank?

    <p>Rediscounting</p> Signup and view all the answers

    What is the primary benefit of an 'elastic' asset-backed reserve currency?

    <p>It facilitates commerce and stabilizes the economy</p> Signup and view all the answers

    What is the ultimate goal of creating money to purchase assets that pay for themselves out of their own future profits?

    <p>To promote capital formation and acquisition by every person</p> Signup and view all the answers

    What is the primary characteristic of a central banking system as originally designed?

    <p>It is a system that provides an automatic guide to the provision of an adequate and stable money supply</p> Signup and view all the answers

    What is the primary risk of allowing the central bank to control the money creation process?

    <p>It may lead to the concentration of power in the hands of an élite</p> Signup and view all the answers

    What is the primary benefit of using the money creation powers of the central bank to finance capital formation and acquisition by every person?

    <p>It provides a stable source of income for individuals</p> Signup and view all the answers

    What is the primary function of money in terms of facilitating economic transactions?

    <p>To serve as a medium of exchange</p> Signup and view all the answers

    What does money provide, according to the text, in terms of measuring economic input and output?

    <p>A method of measuring obligations, rights, powers, and privileges</p> Signup and view all the answers

    Which of the following is a characteristic of money, according to most economists?

    <p>It is a medium of exchange</p> Signup and view all the answers

    What is the relationship between money and the economic system, according to the text?

    <p>Money is a social tool for measuring values used for the exchange of property rights</p> Signup and view all the answers

    What is the primary function of a monetary system, according to Louis O. Kelso and Patricia Hetter?

    <p>A means of accumulating claims against others or the economy</p> Signup and view all the answers

    What is the primary intention behind creating money through commercial banks and a central banking system?

    <p>To ensure that there is always enough money in the economy to meet its needs</p> Signup and view all the answers

    What is the primary function of money as a standard of value?

    <p>To provide a common unit of account for the economy</p> Signup and view all the answers

    What is the consequence of the Federal Reserve purchasing almost no eligible paper from 1933 to 1964?

    <p>Deflation and a lack of money in the economy</p> Signup and view all the answers

    What is the relationship between money and private property, according to the text?

    <p>Money is a social tool for acquiring and securing private property</p> Signup and view all the answers

    What is the primary function of money as a common measure of value?

    <p>To provide a common unit of account for the economy</p> Signup and view all the answers

    What is the relationship between the monetary system and the visible sector of the economy?

    <p>The monetary system is a part of the invisible sector of the economy and its adequacy can only be measured by its effect on the visible sector</p> Signup and view all the answers

    What is the primary objective of the Federal Reserve System when it was set up in 1914?

    <p>To ensure that there is always enough money in the economy to meet its needs</p> Signup and view all the answers

    What is the primary function of money as a store of value?

    <p>To hold value over time</p> Signup and view all the answers

    What would happen if the Federal Reserve System creates or cancels money as needed by the economy?

    <p>There would never be too little money or too much money in the economy</p> Signup and view all the answers

    What is the primary function of money in the economy, according to Louis O. Kelso and Patricia Hetter?

    <p>A medium of exchange, store of value, standard of value, and common measure of value</p> Signup and view all the answers

    What is the ultimate goal of creating money to purchase assets that pay for themselves out of their own future profits?

    <p>To ensure that there is always enough money in the economy to meet its needs</p> Signup and view all the answers

    What is the primary goal of the 'Just Third Way' system of political economy?

    <p>To empower economically every person</p> Signup and view all the answers

    How does the 'Just Third Way' system finance the future of the U.S. economy?

    <p>With a more just system of money and credit</p> Signup and view all the answers

    What is the role of the capital credit insurer in the 'Just Third Way' system?

    <p>To deem a loan a good risk</p> Signup and view all the answers

    What is the term for the process by which a commercial bank sells its qualified loan paper to the central bank?

    <p>Rediscounting</p> Signup and view all the answers

    What is the primary benefit of the 'Just Third Way' system?

    <p>It enables the 100% of humanity to work together in the shortest possible time</p> Signup and view all the answers

    How does a local commercial bank accept a loan contract from a citizen?

    <p>By issuing a promissory note</p> Signup and view all the answers

    What is the role of the twelve regional Federal Reserve banks in the 'Just Third Way' system?

    <p>To buy loan paper from commercial banks</p> Signup and view all the answers

    What is the primary mechanism by which the 'Just Third Way' system extends credit to citizens?

    <p>Through a system of no-interest credit loans</p> Signup and view all the answers

    Study Notes

    Central Banking System

    • The system was designed to guide the banking system towards providing an adequate and stable money supply to meet the needs of industry and commerce.
    • Member banks could obtain credit from the nearest Federal Reserve bank by rediscounting their "eligible paper" or getting advances from the Federal Reserve bank.

    Role of Commercial Banks

    • Commercial banks provide loans to businesses or other productive enterprises, a process called "discounting".
    • The commercial bank then sells the qualified loan paper to the central bank, a process known as "rediscounting".

    Money Creation

    • The central banking system creates an "elastic", asset-backed reserve currency to stabilize the economy and facilitate commerce.
    • The money creation powers of the central bank can be used to spread power around by financing capital formation and acquisition by every person.

    What is Money?

    • Money is anything that can be used to measure, and to represent, the value of something being offered to satisfy a debt, or being exchanged in the marketplace.
    • Money can take many forms, including financial contracts, depending on how people exchange things they own or reasonably expect to acquire.
    • Money is a social tool, an artifact of civilization invented to facilitate economic transactions.
    • Money provides a means for securing the fundamental human right to acquire private property.

    Characteristics of Money

    • Money is a medium of exchange, a store of value, a standard of value, and a common measure of value.
    • Currency or current money involves a commonly recognized determination of value, often regulated, but not necessarily created, by government.

    Louis Kelso's Perspective on Money

    • Money is a social tool for measuring values used for the exchange of property rights.
    • Money is not a part of the visible sector of the economy; people do not consume money.
    • Money provides a method of measuring obligations, rights, powers, and privileges.

    The Purpose of the Central Banking System

    • The system was designed to benefit everyone by allowing money to be created or cancelled as needed by the economy.
    • The system was intended to ensure that there would never be too little money (resulting in deflation) or too much (causing inflation).

    What is Money?

    • Money can be anything that measures and represents value, and is used to satisfy debts or exchange goods in the marketplace.
    • Money can take many forms, including financial contracts, and is a means to secure private property and facilitate economic transactions.

    Functions of Money

    • A medium of exchange
    • A store of value
    • A standard of value
    • A common measure of value

    Understanding Money

    • Money is a social tool, not a physical factor of production, but a yardstick for measuring economic input and output.
    • It provides a method of measuring obligations, rights, powers, and privileges.
    • It allows individuals to accumulate claims against others or the economy as a whole.

    Creating Money

    • Money is created through commercial banks and a central banking system, such as the U.S. Federal Reserve System.
    • The system is designed to benefit everyone, allowing money to be created or cancelled as needed by the economy.

    The Just Third Way

    • A proposed new system of political economy that aims to empower every person economically.
    • It finances the future of the economy by giving every citizen an equal right and access to the financial system.
    • It would provide no-interest credit to every citizen to purchase new shares in companies, with repayment coming from future profits.

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    Description

    This quiz covers the role of Federal Reserve banks in providing liquidity to sound banks, restraining credit expansion, and guiding the banking system towards a stable money supply.

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