Question

1) Please state which function of money is being used by each of the following activities: Unit of Account (Standard of Value, Medium of Exchange or Store of Value.  Please explain the reasoning behind each answer.

(a) Brenda puts $600 into her cookie jar for a rainy day.

(b) Brenda records the money she has spent on gasoline this year.   

(c) Brenda buys a $100 Savings Bond.

(d) Brenda uses $2,400 to pay her rent.

2)

(a) Please provide a description of Bank Runs.

(b) Explain the main cause of Bank Runs.

(c) Why do you think we no longer see many Bank Runs today.

Answer 1

Answer 1a) Brenda stored $600 in cookies jar considered as store of value because money has been stored from the rain and after sometime when come out remains with same money power.

B) Brenda records the money she spent on gasoline this year included in the unit of account as it shows the expenses has been measured using this account.

C) Brenda buys a $100 saving bond. It means that money act as a standard of value . It means that bonds has been purchased with particular price.

D) Brenda used $2400 to pay rent is considered as medium of exchange. As house has been taken for rent and money has been given in return.

Answer 2 a) A banks runs occur when many of its existing customer and financial institutions withdraw there deposits and thinks that bank will be cease in near future. So, the bank runs has been occurred. As many people thinking that bank will no more exist in the future and withdraw there money or no more investment.

B) Main cause of bank runs are :

• Failure of occurance of return vs risk. Customer of bank thinks that now it is risky to put money in this bank because bank become insolvent in near future.
• Failure of diversity in a bank.

C) There is no longer see bank runs because the deposit insurance offered by the Federal deposits insurance corporation. Another reason is that there is high supervisor and control over the activities and function of the bank.