3. Which of the following items are money and perform all functions of money, an

Question

3. Which of the following items are money and perform all functions of money, and which items are not money and perform only some functions of money? ( 2 points)

a. A dime

b. U.S saving bond

c. A debit card

d. A credit card

4. Identify whether each of the following items is counted in M1 only, M2 only, both M1 and M2, or neither. (2 points)

a. A $100,000 certificate deposit issued by a New York bank.

b. A $10,000 deposit an elderly widow holds in her savings account.

c. A $50 traveler’s check.

d. A $50,000 money market deposit account balance

5. Monica transfers $10,000 from her savings account at the Bank of Alaska to her money market fund. What is the immediate change in M1 and M2? (1 point)

6. Suppose that this year the money supply ( Ms) is $500 billions, nominal GDP (P x Q) is $10 trillions, and Real GDP (Q) is $5trillions.                                                               ( 1 point)

All underlying work must be shown to receive full credit

a. What is the price level in the economy this year?

b. How often is dollar spent on the economy output this year?

Extra Points (3 points)

1. Briefly explain whether you agree with the following statement:” I recently read that more than half of the money issued by the government is actually held by people in foreign countries. If this is true, the United States is less than half wealthy as the government statistics indicate”.

2. Was money a better store of value in the United States in the 1950s than it was in the 1970s? Why or why not? In which period would you have been willing to hold money? Why?

3. Suppose that debit cards, ATM, and other forms electronic funds transfer did not exist.

a. How would this change the way you shop and pay bills?

b. How would transaction costs in the economy be affected?

Explanation / Answer

Ans 3) Dime is definately a money, It performs all the functions of money, i.e. It is an unit of account ( that means the worth of the product can be valued in Dime), It is a medium of exchange ( that you means you can get some thing in return of dime), It is a stored value, (That means when you store it It will always have a value).

while US saving bond is certainly carrying a money but where , It is in account, need to ask the basic question about the functionality of money, that is the power of purchase and sales, and obviously, with US saving bond you can not purchase, you have to first convert this into money by with drawing the money from your account, hence It can not be regarded as money, but It dies one function of money, that is It is a store of value.

A debit card, It can definately buy you a product but still we can not consider it as money since It does not perform other functions of money like, It is not a unit of account means, ( you can not value a product saying it is worth of 2 Debit card, you have to value a product in Dollar).  It has a money in its account that allows you to buy anything.

A credit Card,Through this also you can buy or sell something, but this is nothing but an extension of lending, that lending is given to you by your banker, you purchase anything giving the credit cards, but ultimately you pay at the end of the month when credit card statement generated, hence there you are paying in money. Though credit cards perform the functions of money of medium of exchange but it does this because of lend you got from your bank and you pay him at the end of the month, It still does not perform other functions of money like a value of storage,a unit of account, hence It also can not be completely said as money.

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