Chapter 3

Question 1

anything generally accepted as payment for goods and services or in repayment of debts; it is a stock meaning it is measured at a given point in time.

Answer 1

Money

Question 2

Words that are commonly confused with money:

Answer 2

Currency- paper bills and coins; it is one type of money
Wealth- money plus other assets that serve to store value
Income- the flow of earnings per unit of time ($78,000 per year)

Question 3

reduced transportation costs, specialization of division of labor, but easily stolen and expensive to transport large amounts

Answer 3

Fiat Money

Question 4

most liquid assets
Calculated as: Currency in circulation (NOT in a bank vault, ATM, at the Fed or Treasury)
+Demand deposits (checkable deposits at commercial banks)
+Other checkable deposits
+Savings deposits and money market deposit accounts

Answer 4

=M1

Question 5

M1 (everything in M1 is included in M2)
+ Small denomination time deposits (CDs less than $100k)
+ Money market fund shares (retail)

Answer 5

=M2

Question 6

Everything else is constant, a change in M1 causes what to happen to M2?

Answer 6

Change in same direction, and same amount.