Critical Thinking Questions
The Bring It Home Feature discusses the use of cowrie shells as money. Although cowrie shells are no longer used as money, do you think other forms of commodity monies are possible? What role might technology play in our definition of money?
Imagine that you are a barber in a world without money. Explain why it would be tricky to obtain groceries, clothing, and a place to live.
Explain why you think the Federal Reserve Bank tracks the amount of M1 and M2.
The total amount of U.S. currency in circulation divided by the U.S. population is about $3,500 per person. That is more than most of us carry. Where is all the cash?
Explain the difference between how you would characterize bank deposits and loans as assets and liabilities on your own personal balance sheet, and how a bank would characterize deposits and loans as assets and liabilities on its balance sheet.
Should banks have to hold 100 percent of their deposits? Why or why not?
Explain what will happen to the money multiplier process if there is an increase in the reserve requirement?
What do you think the Federal Reserve Bank did to the reserve requirement during the Great Recession of 2008–2009?