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Chapter 3: Q.9 (page 110)
Why were people in the United States in the nineteenth century sometimes willing to be paid by check rather than with gold, even though they knew there was a possibility that the check might bounce?
People will accept checks due to lower transaction costs.
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Explain the concept of liquidity. Rank the following assets from most liquid to least liquid:
a. Land
b. The inventory of a merchandiser
c. Cash in hand
d. A savings account at a local bank
e. A one-year bond
f. Ordinary shares
Three goods are produced in an economy by three individuals: Good Producer Apples Orchard owner Bananas Banana grower Chocolate Chocolatier If the orchard owner likes only bananas, the banana grower likes only chocolate, and the chocolatier likes only apples, will any trade between these three persons take place in a barter economy? How will introducing money into the economy benefit these three producers?
If you use an online payment system such as PayPal to purchase goods or services on the Internet, does this affect the M1 money supply, the M2 money supply, both, or neither? Explain
In prison, cigarettes are sometimes used among inmates as a form of payment. How is it possible for cigarettes to solve the 鈥渄ouble coincidence of wants鈥� problem, even if a prisoner does not smoke?
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 |
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