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Chapter 3: Q.8 (page 110)
Why have some economists described money during a hyperinflation as a 鈥渉ot potato鈥� that is quickly passed from one person to another?
The value of money during hyperinflation is too less that its actual rate, thus people instead of investing it pass on to the next person.
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Go to the St. Louis Federal Reserve FRED database, and find data on currency (CURRSL), traveler鈥檚 checks (TVCKSSL), demand deposits (DEMDEPSL), and other checkable deposits (OCDSL). Calculate the M1 money supply, and calculate the percentage change in M1 and in each of the four components of M1 from the most recent month of data available to the same time one year prior. Which component has the highest growth rate? The lowest growth rate? Repeat the calculations using the data from January 2000 to the most recent month of data available, and compare your results.
19. The table below shows hypothetical values, in billions of dollars, of different forms of money.
a. Use the table to calculate the M1 and M2 money supplies for each year, as well as the growth rates of the M1 and M2 money supplies from the previous year.
b. Why are the growth rates of M1 and M2 so different? Explain.
| 2019 | 2020 | 2021 | 2022 | |
| Currency | 880 | 895 | 900 | 906 |
| Money market mutual fund shares | 680 | 685 | 683 | 692 |
| Saving account deposits | 5,500 | 5,780 | 5,968 | 6,105 |
| Money market deposit accounts | 1,214 | 1,245 | 1,274 | 1,329 |
| Demand and checkable deposits | 1,000 | 972 | 980 | 993 |
| Small denomination time deposits | 840 | 871 | 1,133 | 1,576 |
| Traveler's check | 5 | 5 | 4 | 3 |
| 3-month treasury bills | 1,986 | 2,374 | 2,436 | 2,502 |
Suppose that the cost of a movie ticket is \(12, and a latte costs \)6. Why would the theater management say the cost of admission is $12 and not two lattes? Explain why it is more efficient to compare the value of commodities in monetary terms.
Was money a better store of value in the United States in the 1950s than in the 1970s? Why or why not? In which period would you have been more willing to hold money?
It is not unusual to find a business that displays a sign saying 鈥渘o personal checks, please.鈥� On the basis of this observation, comment on the relative degree of liquidity of a checking account versus currency
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