The Money Market: Debit Cards Or Credit Cards Money

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The Money Market
1 Are debit cards or credit cards money
The use of debit and credit cards eliminates the aspect of carrying physical money. Debit cards work in such a way that a customer deposits money in the card account. The customer can the use the money in the card by swiping and hence eliminates carrying physical cash. Credit cards on the other hand allow customers to use money that they do not have. The card is loaded with money from the bank. The customer can use up to a certain limit and would be required to pay the used amount at the end of a given period, usually one month. With both credit and debit cards, there is also an option to withdraw money (Mayes, 2012). Therefore a comparison of both credit and debit cards, debit cards is the actual money. It is money that a customer already has. Credit cards are borrowed money which will need to be repaid as per the agreement with the bank.
2 When the Fed makes an open market purchase of government securities, the quantity of money will eventually decrease by a fraction of the initial change in the monetary base." Is the previous statement correct or incorrect? Explain your answer.
The statement made herein above is incorrect. Usually, when the federal government makes a purchase of government securities in an open market, usually there is an increase in the quantity of money. Normally, there is a federal requirement that all banks must deposit 10% of their total amounts as reserve with the government. This accumulative amount is what the federal government uses to participate in an open market Open market participation by the federal government involves purchase and selling of treasury notes, bonds and bills. This in effect increases total reserves for banks. With the government participating in an open market, the initial base of money goes up leading to an increase in money. For instance, if the bank buys bonds worth $ 20 million from bank X, then the reserves of that bank increases by this amount. Now that the bank has additional reserve the bank quickly disburses this amount in form of loans so as to earn interests. The customers to whom the loans are disbursed spend the money on services and goods. The multiplier process works in such a way that when the bank gives s loans, there is a general increase of circulation of money by the very amount they have disbursed. Therefore, if there is an increase of money reserves by $ 20 million and the money multiplier is also $ 20 million, then the increase in the money supply is $ 20 x 20 which is $ 400.
3 Tools of Monetary Policy
There are multiple ways in which the federalgovernment can increase money supplies. One tool that the government employs is the use open market operations which involves sale of treasury bonds, bills and notes as discussed above. This leads to an increase in money supply because the reserves of the respective banks are increased.
Another tool that the government employs is changing the reserve requirement. Normally, there is a legal requirement that each bank mu...