Order Functions of Money Assignment

Order Functions of Money Assignment
1. Which of the following three expressions uses the
economists’ definition of money?
a. “How much money did you earn last week?”
b. “When I go to the store, I always make sure that I
have enough money.”
c. “The love of money is the root of all evil.”
*2. There are three goods 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?
3. Why did cavemen not need money?
*4. 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 that
there was a possibility that the check might bounce?
5. In ancient Greece, why was gold a more likely candidate for use as money than wine was?
*6. 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 more willing to hold money?
7. Would you be willing to give up your checkbook and
instead use an electronic means of payment if it were
made available? Why or why not?
8. Rank the following assets from most liquid to least liquid:
a. Checking account deposits
b. Houses
c. Currency
d. Washing machines
e. Savings deposits
f. Common stock
Order Functions of Money Assignment
*9. Why have some economists described money during a
hyperinflation as a “hot potato” that is quickly passed
from one person to another?
10. In Brazil, a country that was undergoing a rapid inflation before 1994, many transactions were conducted
in dollars rather than in reals, the domestic currency.
Why?
QUIZ
*11. Suppose that a researcher discovers that a measure of
the total amount of debt in the U.S. economy over the
past 20 years was a better predictor of inflation and
the business cycle than M1, M2, or M3. Does this discovery mean that we should define money as equal to
the total amount of debt in the economy?
12. Look up the M1, M2, and M3 numbers in the Federal
Reserve Bulletin for the most recent one-year period.
Have their growth rates been similar? What implications do their growth rates have for the conduct of
monetary policy?
*13. Which of the Federal Reserve’s measures of the monetary aggregates, M1, M2, or M3, is composed of the
most liquid assets? Which is the largest measure?
14. For each of the following assets, indicate which of the
monetary aggregates (M1, M2, M3) includes them:
a. Currency
b. Money market mutual funds
c. Eurodollars
d. Small-denomination time deposits
e. Large-denomination repurchase agreements
f. Checkable deposits
*15. Why are revisions of monetary aggregates less of a
problem for measuring long-run movements of the
money supply than they are for measuring short-run
movements?