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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Why have some economists described money during a hyperinflation as a “hot potato” that is quickly passed from one person to another?
Go to http://www.federalreserve.gov/releases/h6/Current/.
a. What have been the growth rates of M1 and M2 over the past 12 months?
b. From what you know about the state of the economy, do these growth rates seem expansionary or restrictive?
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
The money supply is the entire amount of money in circulation, including cash, coins, and bank account balances. The money supply is typically defined as a collection of safe assets that consumers and companies can use to make payments or invest in short-term.
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?
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