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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?

Short Answer

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Rate of inflation plays vital role in stating the value of a currency.

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01

Step 1. Introduction

Money is a tool that acts as a medium in economic transactions. It also serves the purpose of measure of value and store of value, and facilitates trade.

02

Step 2. Explanation

In the 1950s, the rate of inflation was comparatively lower than the in the 1970s. So, in the 1970s, inflation caused the value of cash holdings to decline. Storing value in money was harmful in the 1970s. So, money was a better store of value in the 1950s.

A person would have been more willing to hold money in the 1950s as the inflation was lower.

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Most popular questions from this chapter

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

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

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?

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?

Over several hundred years, payments systems used in countries across the world have evolved. For each of the following situations identify the type of payment utilized and at least one reason why economies are moving from checks to electronic payments.

a. Sheila visits a local grocery store to purchase a dozen eggs and a bag of dog food. She uses a โ‚ฌ100 note to pay for the goods.

b. Rachael Garcia, a manager at Proxall Pharmacy, used a piece of gold worth $20 to pay for office supplies she needed this month.

c. Edward has just moved to the city to be closer to his office. He was shopping online for some pieces of furniture and he bought a wardrobe and a table lamp. He used a checking account to initiate an automatic bill payment for the items.

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