A group of economics students gathered to study for a test on the money and bank

Question

A group of economics students gathered to study for a test on the money and banking system in the U.S. During a fast and furious brainstorm session, Jill scribbled down several key phrases she will use to study tomorrow. Unfortunately, in her haste, all the statements in her notes are incorrect:

- Two forms of money include cash and credit cards because both are accepted as payment.
- All savings accounts are considered transaction accounts because they represent money.
- Consumers who make loan payments create transaction accounts.
- If I open a savings account at a bank with cash received as a birthday gift, I'll increase the money supply in the economy.
- By creating transaction accounts, even a single bank has unlimited power to affect the money supply.
- If a bank has $10 million in reserves and an additional $3 million in excess reserves, it can make loans up to $13 million.

Explanation / Answer

respect that a place that accepts credit cards knows that they will get paid by the credit card company for your purchase. The credit card company then knows that they will be able to hold you accountable to repay the loan + any interest that accrues. In short it is not "money" because you could default on it, it would more accurately be called financing.

In short
Credit cards are a form of money only if the balance is paid in full each month.

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