Problem 1
(a) A person trades in a car when buying another. Is the used car a medium of exchange? Is this a barter transaction? (b) Could you tell by watching someone buying mints (white discs) with coins (bronze discs) which one is money?
Problem 3
Saying that banks have become too big to fail means: (a) large banks are safer, (b) large banks are less safe, (c) managers of large banks realize they can take risks because politicians will have to bail them out if things go wrong?
Problem 6
Initially gold coins were used as money but people could melt them down and use the gold for industrial purposes. (a) What must have been the relative value of gold in these two uses? (b) Explain the circumstances in which gold could become a token money. (c) Explain the circumstances in which gold) could disappear from monetary circulation completely.
Problem 7
Suppose banks raise interest rates on time deposits whenever interest rates on bank loans and other assets rise. Does a rise in the general level of interest rates have a big or small effect on the demand for time deposits?
Problem 10
Since credit cards can be used to make payments, why are they not treated as money?
Problem 11
Would it make sense to include (a) travellers' cheques, (b) student rail cards or (c) credit cards in measures of the money supply?
Problem 12
Essay question Lots of institutions accept deposits and reissue them on demand - building societies, Christmas savings clubs and theatre cloakrooms. What is the key feature of banks that distinguishes them from other institutions? Why does this matter?
