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In many parts of the world, U.S. dollars are preferred to the local currency. Significant black markets that use U.S. dollars and not the local currency may arise in these countries. What primary characteristic of good money is violated by the local currency in these countries?

Acceptability
Uniformity
Durability
Portability
Limited Supply
Divisibility

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Related questions

Federal Reserve notes are printed on paper that is made from 75 percent cotton and 25 percent linen. This high-quality paper ensures that a $1 bill left in the pocket of your jeans can survive your washing machine and dryer. If Federal Reserve notes were printed on copier paper, what primary characteristic of good money would likely be violated?

a)Uniformity
b)Portability
c)Divisibility
d)Acceptability
e)Durability
f)Limited supply

Cattle have been used as money at different points in history. In some cases, a stack of U.S. 20-dollar bills is equal to the value of one cow. Cows come in many shapes and sizes and have different values. A stack of 20-dollar bills is all the same size and shape and value. Which characteristic of money would this scenario apply to?

Uniformity
Durability
Portability
Acceptability
Divisibility
Limited Supply

Multiple Choice

1. Assume that the money multiplier equals 2.5 and if the Fed purchases $10 million in bonds from a bank, the monetary supply will:

  1. Increase by $10 million.
  2. Increase by $25 million.
  3. Decrease by $10 million.
  4. Decrease by $25 million.

2. The monetary base is defined as:

  1. all currency in circulation.
  2. checkable deposits at depository institutions.
  3. excess reserves in the banking system.
  4. currency plus total banking reserves.

3. Which of the following means of financing federal government spending will increase the monetary base?

  1. raising the corporate income tax.
  2. raising the personal income tax.
  3. selling bonds to the public.
  4. selling bonds to the Fed.

Short Answer

1. Assume the Federal Reserve Board is undertaking an expansionarymonetary policy. Explain the details of how the expansionary Fed impacts each of the following:

  1. Open market operations - how does the Fed use open market operations for an expansionary monetary policy?
  2. The monetary base.
  3. Money Supply.
  4. Fed funds interest rate.
  5. Long-term interest rates.
  6. Business Investment.
  7. Aggregate demand.
  8. Economic growth.
  9. Unemployment rate.

2. Under certain circumstances, expansionary Fed policy may not have much of an effect on the rate of economic growth. Give a reason why, and explain?

3. Regarding the Asian currency crisis, answer the following questions:

  1. Describe the normal reasons why a currency undergoes a significant depreciation and what were the important characteristics of the Asian countries involved in the crisis?
  2. What are some expected domestic economic consequences of the currency crisis for the countries involved? Focus on:
    • import prices of goods and services into the Asian country.
    • export prices of goods and services from the Asian country.
    • Domestic inflation rates.
  3. Assume that the countries involved undertake a tight monetary policy and raise interest rates in response to the crisis. What are the two primary reasons for raising interest rates in their case?
  4. Given high domestic interest rates, what is the economic outlook for these Asian countries in the next few years?

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