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The Monetary Policy

Autor:   •  March 4, 2015  •  Course Note  •  812 Words (4 Pages)  •  754 Views

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Week 5 Participation


  1. Banks create money out of thin when we borrow money. The bank tends to not lend existing money.  Banks are just like other businesses, their product just happens to be money. Banks sell their money in the forms of loans, certificates of deposit and other financial products. Banks make their money on the interest that they charge on loans this is because  the interest rates is higher than the interest rates they pay on depositors accounts. The new money that is created inflates the money supply. The money isn’t really federal reserve bank not, it is checkbook money. It is a promise that the account will pay the bank.
  2. The Monetary policy is defined as the regulation of the interest and the availability of funds in order to be able to provide the sustainable growth and help to prevent a hard crash within the market.  This policy works by considering how the economy is performing. The Monetary policy is also in place to attempt to control the economy. In order for anyone to understand this policy, they must understand the relationship between money supple and banking within the market economies.  The individual or individuals within the central bank also known as the United States Federal Reserves in the US are responsible for the Monetary policy.


  1. Non-income Determinants of consumption and Saving includes the following:

Price level


Rates of interest and taxes

Expectation for future prices, income, money, and the availability of goods consumer in debtedness.

Although there are changes within non-income determinant it can shift the consumption and saving schedules this because the non-determinants frequently work against each other that may cancel out any increases/decreases in the curves.

  1. Money has a huge influence on the lives of individual. The more money a individual makes the more he or she can consume and services the individual can afford. Money has serval function that can be classified into three groups:

Primary functions

Secondary junctions

Contingent functions

The characteristics of what serves as money depend somewhat on the degree of complexity in the society. There are some general characteristics that are usually important for whatever serves as money in a modern economy. The characteristics of money includes the following:


Relatively scarce

Not easily reproduced by individuals

Easily transported

Not to scarce


  1. Inflation can affect our three function of money. Inflation can affect our three function of money in the following manner:

Medium of exchange- Inflation doesn’t really affect this function of money as long the same funds are going to be accepted as a payment. But if there is an extreme inflation the individual may lost their confidence in money to the extent where they have to resort to barter or some other means.  

Unit of Account- Inflation can affect this function of money in two different ways: different amounts of money during the inflation, making comparisons can be difficult, and the unstable prices can make it difficult for individuals to have excellent information for the comparisons.  


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