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Chapter 10: Problem 5

Economists speak about printing, issuing, and supplying paper money. Are these different functions? Where is each function performed?

Short Answer

Expert verified
Printing, issuing, and supplying paper money are different functions. Printing refers to the production of physical currency, a process typically carried out by a government bureau. Issuing is the introduction of this money into the economy, a function of the central bank. Finally, supplying refers to the wider task of managing the total flow of currency in an economy, including the addition of new money and the withdrawal of old bills; this function, too, is performed by the central bank.

Step by step solution

01

Define Printing Money

Printing money specifically refers to the actual production of the paper currency. This process involves manufacturing physical coins or paper bills. In most countries, this function is performed by a government-controlled department, such as the Bureau of Engraving and Printing in the United States.
02

Define Issuing Money

Issuing money refers to the process of releasing the newly printed currency into circulation within the economy. Only a country's central bank has the authority to issue money. For example, in the United States, the Federal Reserve issues money.
03

Define Supplying Money

Supplying money is the broader process of managing the flow of money in an economy. This involves not just the printing and issuing of new money, but also the withdrawal of old or damaged bills from circulation. The central bank is also in charge of this process. They must maintain a healthy balance to avoid causing inflation or deflation.

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Most popular questions from this chapter

Take a look at a Federal Reserve note. On it, you will read the following words: "This note is legal tender for all debts, public and private." What part of the definition of money does this message refer to?

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What does it mean to say that the United States has a fractional reserve banking system?

What is the difference between near-money and money?

Explain how a check is cleared.
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