Money & Banking | Functions of The Federal Reserve System & The Tools That The Fed Uses to Control The Money Supply

Discuss the functions of the Federal Reserve System, and describe the tools that the Fed uses to control the money supply.

Possible Answer: The Fed is the nation’s central bank. As the government’s bank, it produces currency and lends money to the government. As the bankers’ bank, it lends money to member banks, stores required reserve funds for banks, and clears checks for them. The Fed’s Open Market Committee is responsible for formulating the monetary policies to promote economic stability and growth by managing—increasing or decreasing—the nation’s money supply. Among its tools for controlling the money supply, the Fed specifies reserve requirements, it sets the discount rate at which it lends money to banks, and it conducts open-market operations to buy and sell securities. It also exerts influence through selective credit controls.

Source: Business Essentials, 8e (Ebert/Griffin) – Global Edition

Money & Banking | How Financial Institutions Create Money

Explain how financial institutions create money, and describe the means by which financial institutions are regulated.

Possible Answer: The money supply expands because banks can loan out most of the money they take in from deposits. The new loans create additional deposits as follows: Out of a deposit of $100, the bank may hold $10 in reserve and loan 90 percent—$90—to borrowers. There will still be the original $100 on deposit, and borrowers will also deposit the $90 loans in their banks. Now the borrowers’ banks have another $81 of new deposits available for new loans (90% of the $90). Banks, therefore, have turned the original $100 deposits into $271 ($100 + $90 + 81) of deposits. Further, the government regulates banks to ensure a sound financial system. The Federal Deposit Insurance Corporation insures deposits and guarantees the safety of all deposits up to the current maximum of $100,000. To ensure against failures, the FDIC examines the activities and accounts of all member banks.

Source: Business Essentials, 8e (Ebert/Griffin) – Global Edition

Money & Banking | Four Characteristics of Money

What are the four characteristics of money?

Possible Answer: For an object to serve as money, it must be portable, divisible, durable, and stable. U.S. currency, particularly paper money, is portable, allowing someone to carry hundreds or even thousands of dollars. It is divisible, with coins and paper currency in a variety of denominations. Coins are durable due to their composition of precious metals and paper currency is durable because it is replaced by the banking system before it wears out. Finally, it is stable in value, with limited inflation.

Source: Business Essentials, 8e (Ebert/Griffin) – Global Edition

Money & Banking | Three Functions of Money

List and describe the three functions of money.

Possible Answer: Money serves three functions: a medium of exchange, a store of value, and a unit of account. Money serves the medium of exchange function by eliminating the need for a barter system. In the form of currency, money can be used for future purchases and allows people to “store value.” Money is a unit of account, allowing people to measure the relative value of goods and services.

Source: Business Essentials, 8e (Ebert/Griffin) – Global Edition

Money & Banking | Three Functions of The Federal Reserve System / Central Bank

Describe the three functions of the Federal Reserve System / Central Bank.

Possible Answer: The three functions of the Federal Reserve are acting as the government’s bank, acting as the bankers’ bank, and controlling the money supply. As the government’s bank, the Fed produces the nation’s paper currency and lends money to the government. As the bankers’ bank, the Fed loans money to member banks and provides storage of funds. The Fed is responsible for managing the nation’s economic growth by managing the money supply and interest rates.

Source: Business Essentials, 8e (Ebert/Griffin) – Global Edition

Marketing & Consumer Behavior | Elements of The Marketing Mix

Describe the elements of the marketing mix. What is their collective role?

Possible Answer: The elements of the marketing mix include product, price, promotion, and place. The product portion of the marketing mix includes goods, services, or ideas designed to fill a consumer need or want. Meeting consumer needs often means changing existing products to keep pace with emerging markets and competition; many marketers focus on differentiating their product(s) from those of competitors. Pricing a product involves the selection of the best price at which to sell the product. Prices must support a variety of costs within the organization. Further, both low- and high-price strategies can be effective in different situations. Place, or distribution, refers to the proper placement of products in the market. Place decisions—including transporting, warehousing, and inventory control—are all about getting the product from the producer to the consumer. Promotion is the most highly visible component of the marketing mix; promotion refers to the techniques for communicating information about products. Promotion involves activities surrounding advertising, sales promotions, publicity, and public relations. Collectively, the marketing mix allows a marketer to better relate to the identified target market; based on the characteristics of the target market, the marketer will “build” the marketing mix elements around the target market.

Source: Business Essentials, 8e (Ebert/Griffin) – Global Edition

Marketing & Consumer Behavior | Three Types of Competition Faced by Marketers

Describe the three types of competition faced by marketers.

Possible Answer: The three types of competition faced by marketers include substitute products, brand competition, and international competition. Substitute products may not look alike, or they may seem very different from one another but can fulfill the same need. Brand competition occurs between similar products, such as the auditing services provided by the large accounting firms of Ernst & Young and KPMG. Brand competition is based on buyers’ perceptions of the benefits of products offered by particular companies. International competition matches the products of domestic marketers again those of foreign competitors. After identifying which type of competition is present, the marketer can then develop a strategy for attracting more customers.

Source: Business Essentials, 8e (Ebert/Griffin) – Global Edition