Chapter 3: Q.1 (page 110)
Why is simply counting currency an inadequate measure of money?
Counting currency is inadequate measure because, it does not cover entire money supply of the economy.
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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?
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?
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
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?
Go to the St. Louis Federal Reserve FRED database, and find data on currency (CURRSL), traveler’s 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.
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