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Questions and Answers
What action should the central bank take if the GDP of a country hasn't improved in the past three years and they want to increase the amount of money people spend?
What action should the central bank take if the GDP of a country hasn't improved in the past three years and they want to increase the amount of money people spend?
Reduce Interest Rates
What type of money did a small country issue during wartime that promised to pay the holder a certain amount in silver?
What type of money did a small country issue during wartime that promised to pay the holder a certain amount in silver?
Representative
Reserve Banks are __________ that help the __________ carry out its duties.
Reserve Banks are __________ that help the __________ carry out its duties.
Regional Banks, Central Bank
Classify each action as contractionary or expansionary monetary policy:
Classify each action as contractionary or expansionary monetary policy:
What is a characteristic of money?
What is a characteristic of money?
Which characteristic of money allowed a man from a community to trade five cows for a plot of farmland?
Which characteristic of money allowed a man from a community to trade five cows for a plot of farmland?
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Study Notes
Monetary Policy Adjustments
- Reducing interest rates stimulates economic activity by encouraging spending on goods and services.
- Central banks may adopt such measures to boost GDP during economic stagnation.
Types of Money
- Representative money is backed by a physical commodity, such as silver.
- After wartime, if a population continues to use certificates rather than redeeming them for their commodity value, they exemplify the use of representative money.
Role of Reserve Banks
- Reserve Banks function as regional branches of the Central Bank.
- They assist the Central Bank in implementing monetary policies and maintaining monetary stability.
Monetary Policy Classification
- Contractionary monetary policy involves actions like increasing the discount rate and selling government securities to reduce money supply.
- Expansionary monetary policy includes reducing the required reserve ratio and lowering the federal funds rate to enhance money supply.
Characteristics of Money
- One key characteristic of money is its limited supply, making it valuable and preventing inflation.
Acceptability in Transactions
- The acceptability of money ensures its usability in transactions, exemplified by a community using cattle as money, facilitating trades like exchanging cows for land.
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