Chapter 25: Problem 1

Money in the United States today includes which of the following items? Cash in Citibank's cash machines; U.S. dollar bills in your wallet; your Visa card; your loan to pay for school fees.

Short Answer

Expert verified

Money in the U.S. includes U.S. dollar bills in your wallet and cash in Citibank's cash machines.

Step by step solution

Define Money

Money in the United States is often defined by elements that function as a medium of exchange, a unit of account, and a store of value. Common forms include currency (bills and coins) and demand deposits in bank accounts.

Analyze Items

Examine each item given in the exercise to determine if it fits the criteria for being classified as money.

Cash in Citibank's Cash Machines

Cash available in Citibank's cash machines is readily accessible and can be used directly for transactions. This is considered money as it functions as a medium of exchange and store of value.

U.S. Dollar Bills in Your Wallet

U.S. dollar bills in your wallet are physical currency. They are universally accepted for transactions and fulfill the role of money.

Your Visa Card

A Visa card itself is a method to access funds but not money. It allows you to make transactions, accessing existing money (like funds in a bank account) but does not count as money directly.

Your Loan to Pay for School Fees

A loan is a liability and not an asset that fits into the definition of money. It represents borrowed resources and potential future payments but cannot be used as a medium of exchange directly.

Summarize Items Considered as Money

Based on the analysis, the items that qualify as money include U.S. dollar bills in your wallet and cash in Citibank's cash machines.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Medium of Exchange

In economic terms, money operates as a medium of exchange. This simply means that it is an item that buyers give to sellers when they want to purchase goods or services. It facilitates trade by eliminating the need for a barter system, where you would need to exchange goods directly. For example, instead of trading a bag of rice for a pair of shoes, you can use money to buy the shoes. Sellers accept money because they know it can be widely used by them in future transactions. Thus, U.S. dollar bills in your wallet and cash in Citibank's machines serve as money. They are accepted everywhere as a means to conduct transactions.

Store of Value

Another important role of money is its function as a store of value. This implies that money can be saved and retrieved in the future, maintaining its value over time. For example, when you keep dollar bills in your wallet, their value remains stable, allowing you to spend them whenever you need to. In this way, money enables you to transfer purchasing power from the present to the future. It is worth noting that items like your Visa card do not qualify as a store of value. The card itself represents access to funds but does not store value within itself. Similarly, a school fee loan does not serve as money because it represents an obligation, not a stored value.

Unit of Account

Money also functions as a unit of account. This means it is a standard numerical unit of measurement that provides a consistent way to value goods and services. For instance, when you see a price tag, it helps you understand the relative value of that item compared to others. This standardized measure simplifies comparison and accounting. In the United States, dollars and cents provide this familiar framework, streamlining economic transactions and calculations. Unlike quantifiable money, your Visa card or a school fee loan doesn't serve as a unit of account. They can help facilitate transactions but do not provide a standard by which goods' value is measured.