Question

1. What is money and why is it important to our economy?
2. Are savings accounts money? Explain.
3. Is U.S. currency backed by gold or anything else? Why do people work hard to get it?
4. What is the primary role of our banking system?
5. Explain how banks can create money.
6. Describe the structure and roles of the Federal Reserve.

Answer 1

1.

Money is a medium of exchange of goods and services among individuals. It is important to our economy because it facilitates exchange of goods between people. Without money people would not be able to consume anything apart from what the have currently. Money is important to exchange for goods and services and increase consumption.

2.

Yes, savings accounts are money as they are liquid and can be exchanged for cash and used as money

3.

The U.S. currency backed by the faith and credibility of the US government. People work hard to get it so that they are able to afford whatever goods and services they wish to desire.

4.

The primary role of our banking system is to create a platform for lenders and borrowers where they can meet and exchange funds at market interest rates

5.

Banks create money by giving out loans from their bank deposits and earn interest income on it.

6.

The Federal Reserve system consists of one main central authority (Board of Governors) and 12 Federal Reserve banks throughout the country. Their main purpose is to regulate money supply in the economy, regulate financial institutions in the economy, act as the main banking institution of the US government.