California Career College Theory of Money and Banking Discussion

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Wbuaal001

Economics

California Career College

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Questions answered in the peer review.

  1. U.S. paper currency is made with several features that are difficult to counterfeit, including a security thread, color-shifting ink, microprinting, a portrait, a watermark, and a fine-line printing pattern. As duplication technology, however, continually improves and more and more counterfeits are circulated, what will happen to the following?
    • The value of money circulated.
    • The volume of cashless transactions.
    • The amount of money the U.S. Treasury spends to introduce additional security measures.
  2. In November 2008, the Fed began to pay interest on reserves held at the bank.
    • What effect would you expect on excess reserves?
    • Did banks generally favor or oppose this action?
    • Would central banks generally favor or oppose this action?
    • What effect did this probably have on interest rates paid by banks?

Your Task: Read the posting of your colleagues to further the discussion. Simply saying "I agree, great point, etc" is not a sufficient peer review. You must discuss your peer's argument with detailed evidence (include citations). (minimum of 100 words)

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  • Discussions and responses must show evidence of knowledge of facts pertaining to the issues being discussed and must attempt to apply the economic terms, ideas, and theories.

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1. • The value of money circulated. When supply of money increase then the price level inflation of economy increases because people are ready to spend more for the similar amount of goods. When inflation is increased the value of the money depreciates. • The volume of cashless transactions. When supply of money increase it cause increase in supply of counterfeit notes. So, people like to shop online and transferring online because they don’t need to deal with counterfeit so volume of cashless transactions will increase. • The amount of money the U.S. Treasury spends to introduce additional security measures. Specially these days people like more transfer money online and shop online so counterfeit is increasing which the government must work much more to control it. Because if government could not control them, they will be control whole market which is not good for economy. 2. The investment of investment banks across the world in US financial and housing assets increased. There was unprecedented rise the stock and housing prices. People realized it to be perceived wealth. So people were unable to repay the banks and brokers due to lack of money. While federal reserve paying interest on excess reserve by banks will lead to lower multiplier, this will happen because banks will have at least one source of interest income, rather than going out in the market and looking for return on those deposits. Money supply will increase a bit due to the interest income released by federal reserve in the banking system. 1. As duplication technology advances and the number of counterfeits being circulated increases, the: - value of money circulated will decrease because "more money" leads to inflation, reducing the value of money. As well as the fact that it is hard to be sure that the money is real so the value will decrease. - volume of cashless transactions will increase because that is the only way to be sure that vendors are being paid with real currency rather than fake bills. - amount of money the U.S. Treasury spends to introduce additional security measures will greatly increase because counterfeit money can be a big harm to the value of money as well as the economy so the U.S. Treasury will go to great measures to prevent counterfeit money from being circulated. 2. When the Fed began to pay interest on reserves held at the bank in 2008, - I expect this would cause excess reserves held by banks to increase because the more money they hold, the more interest they will be paid by the fed. - I assume that banks would generally favor this action because they get paid for holding reserves. - I think that central banks would oppose this action because if banks are holding more reserves, they are giving less money to the central banks. - I would assume that the interest rates paid by banks would also have to increase because they are earning more money from the fed. The fed did this as a monetary tool to be able to increase the interest rates that banks have to pay.
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Explanation & Answer

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RESPONSE POST 2
According to Adam Smith’s principles of money supply and demand, an increase in
the supply of money in circulation causes an influx in expenditure; thus, causing an increase
in market prices in the short-run. In the long-run, the value of money starts to decline due to a
decrease in aggregate demand for goods (Curott, 2017). An increase in dollar bills in
circulation will also lead to an increase in the volume of cash transactions in the short-run. The
availability of counterfeits money will raise U.S treasury expenditure in campaigns to caution
citizens as well as the development of technology to detect counterfeit dollar bills in all
financial intuitions. An increase in awareness will also drive people to cashless payments but
depositing money on various financial institutions.

The financial crisis of ...


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