Questions marked with an asterisk are answered at the end of the book in an appendix, "Answers to Selected Questions and Problems."
1. Which of the following three expressions uses the economists' definition of money?
a. "How much money did you earn last week?"
b. "When I go to the store, I always make sure that I have enough money."
c. "The love of money is the root of all evil."
*2. There are three goods produced in an economy by three individuals:
Producer Orchard owner Banana grower
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?
*4. 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 that there was a possibility that the check might bounce?
5. In ancient Greece, why was gold a more likely candidate for use as money than wine was? *6. Was money a better store of value in the United States in the 1950s than it was in the 1970s? Why or why not? In which period would you have been more willing to hold money?
7. Would you be willing to give up your checkbook and instead use an electronic means of payment if it were made available? Why or why not?
8. Rank the following assets from most liquid to least liquid:
*9. Why have some economists described money during a hyperinflation as a "hot potato" that is quickly passed from one person to another? 10. In Brazil, a country that was undergoing a rapid inflation before 1994, many transactions were conducted in dollars rather than in reals, the domestic currency Why?
*11. Suppose that a researcher discovers that a measure of the total amount of debt in the U.S. economy over the past 20 years was a better predictor of inflation and the business cycle than M1, M2, or M3. Does this discovery mean that we should define money as equal to the total amount of debt in the economy?
12. Look up the M1, M2, and M3 numbers in the Federal Reserve Bulletin for the most recent one-year period. Have their growth rates been similar? What implications do their growth rates have for the conduct of monetary policy? *13. Which of the Federal Reserve's measures of the monetary aggregates, M1, M2, or M3, is composed of the most liquid assets? Which is the largest measure?
14. For each of the following assets, indicate which of the monetary aggregates (M1, M2, M3) includes them:
a. Currency b. Money market mutual funds c. Eurodollars d. Small-denomination time deposits e. Large-denomination repurchase agreements f. Checkable deposits
*15. Why are revisions of monetary aggregates less of a problem for measuring long-run movements of the money supply than they are for measuring short-run movements?
a. What has been the growth rate in M1, M2, and M3 over the last 12 months?
b. From what you know about the state of the economy, does this seem expansionary or restrictive?
2. Go to www.federalreserve.gov/paymentsys.htm and select one topic on which the Federal Reserve has a written policy. Write a one-paragraph summary of this policy
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