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Chapter 25: Problem 9

Suppose that Congress passes a new law that requires all firms to accept paper currency in exchange for whatever they are selling. Briefly discuss who would gain and who would lose from this legislation.

Short Answer

Expert verified
People who prefer or need to use cash for transactions would benefit from this legislation. However, businesses, particularly small ones, could incur additional costs and risks due to the need to handle and store physical cash. Thus, there are both winners and losers from this legislation.

Step by step solution

01

Identify the Beneficiaries

First, think about who would benefit from this law. One group that might benefit are people who prefer to use cash payments rather than digital means. This could include older adults who are comfortable with traditional methods or people without access to digital banking services. These groups would now have a guaranteed right to use cash everywhere.
02

Identify the Disadvantaged

Next, identify who would be at a disadvantage. Companies that have established mainly digital payment methods might encounter additional operational costs because of having to adjust their systems to receive cash. Small businesses in particular might be adversely affected, as they would need to invest in secure cash handling and storage options, which could be a financial burden. Additionally, any business would face an increased risk of theft, since handling and storing physical money comes with such dangers.
03

Weigh Costs and Benefits

Weigh the benefits and the drawbacks of the law. This step is not so much about finding definitive answers as about deepening understanding of the ways in which economic policies can have diverse impacts. The conclusion might highlight that while the legislation ensures wider accessibility for purchases using cash, it could impose significant costs and risks for businesses, particularly small ones.

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