Chapter 3, What Is Money? Video Solutions, The Economics of Money, Banking, and Financial Markets

01:01

Problem 1

Why is simply counting currency an inadequate measure of money?

Prashant Bana

Numerade Educator

04:15

Problem 2

In prison, cigarettes are sometimes used among inmates as a form of payment. How is it possible for cigarettes to solve the "double coincidence of wants" problem, even if a prisoner does not smoke?

Pragya Ahuja

Numerade Educator

11:39

Three goods are produced in an economy by three individuals:
$$\text {Good $\space$$\space$$\space$$\space$ Producer} $$
$$\text {Apples $\space$$\space$$\space$$\space$ Orchard owner} $$
$$\text {Bananas $\space$$\space$$\space$$\space$ Banana grower} $$
$$\text {Chocolate$\space$$\space$$\space$$\space$ Chocolatier} $$
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?

Pragya Ahuja

Numerade Educator

01:22

Problem 4

Why did cavemen not need money?

Pragya Ahuja

Numerade Educator

16:18

Problem 5

Most of the time it is quite difficult to separate the three functions of money. Money performs its three functions at all times, but sometimes we can stress one in particular. For each of the following situations, identify which function of money is emphasized.
a. Brooke accepts money in exchange for performing her daily tasks at her office, since she knows she can use that money to buy goods and services.
b. Tim wants to calculate the relative value of oranges and apples, and therefore checks the price per pound of each of these goods as quoted in currency units.
c. Maria is currently pregnant. She expects her expenditures to increase in the future and decides to increase the balance in her savings account.

Pragya Ahuja

Numerade Educator

02:38

Problem 6

In Brazil, a country that underwent a rapid inflation before $1994,$ many transactions were conducted in dollars rather than in reals, the domestic currency. Why?

Pragya Ahuja

Numerade Educator

02:07

Problem 7

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

Pragya Ahuja

Numerade Educator

02:17

Problem 8

Why have some economists described money during a hyperinflation as a "hot potato" that is quickly passed from one person to another?

Pragya Ahuja

Numerade Educator

00:55

Problem 9

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?

Prashant Bana

Numerade Educator

00:55

Problem 9

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?

Prashant Bana

Numerade Educator

02:13

Problem 10

In ancient Greece, why was gold a more likely candidate for use as money than wine?

Pragya Ahuja

Numerade Educator

06:25

Problem 11

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.

Pragya Ahuja

Numerade Educator

01:22

Problem 12

Rank the following assets from most liquid to least liquid:
a. Checking account deposits
b. Houses
c. Currency
d. Automobiles
e. Savings deposits
f. Common stock

Pragya Ahuja

Numerade Educator

01:04

Problem 13

Which of the Federal Reserve's measures of the monetary aggregates $-\mathrm{Ml}$ or $\mathrm{M} 2-$ is composed of the most liquid assets? Which is the larger measure?

Pragya Ahuja

Numerade Educator

10:05

Problem 14

It is not unusual to find a business that displays a sign saying "no personal checks, please." On the basis of this observation, comment on the relative degree of liquidity of a checking account versus currency.

Pragya Ahuja

Numerade Educator

01:31

Problem 15

For each of the following assets, indicate which of the monetary aggregates (M1 and M2) includes them:
a. Currency
b. Money market mutual funds
c. Small-denomination time deposits
d. Checkable deposits

Pragya Ahuja

Numerade Educator

05:40

Problem 16

Assume that you are interested in earning some return on the idle balances you usually keep in your checking account and decide to buy some money market mutual funds shares by writing a check. Comment on the effect of your action (with everything else the same) on $\mathrm{M} 1$ and $\mathrm{M} 2$

Pragya Ahuja

Numerade Educator

04:45

Problem 17

In April $2009,$ the growth rate of M1 fell to $6.1 \%$, while the growth rate of M2 rose to $10.3 \%$. In September 2013 the year-over-year growth rate of the M1 money supply was $6.5 \%,$ while the growth rate of the M2 money supply was about $8.3 \% .$ How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2?

Pragya Ahuja

Numerade Educator

03:46

Problem 18

Suppose a researcher discovers that a measure of the total amount of debt in the U.S. economy over the past twenty years was a better predictor of inflation and the business cycle than M1 or M2. Does this discovery mean that we should define money as equal to the total amount of debt in the economy?

Pragya Ahuja

Numerade Educator

05:37

Problem 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 $\mathrm{M} 1$ and $\mathrm{M} 2$ so different? Explain.

Ethan Dotson-Kelly

Numerade Educator

Problem 1

Problem 2

Problem 3

Problem 4

Problem 5

Problem 6

Problem 7

Problem 8

Problem 9

Problem 9

Problem 10

Problem 11

Problem 12

Problem 13

Problem 14

Problem 15

Problem 16

Problem 17

Problem 18

Problem 19