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Chapter 24: Problem 10

Which definition of the money supply includes credit cards, or "plastic money"? a. \(\mathrm{M} 1\) b. \(\mathrm{M} 2\) c. All of the above d. None of the above

Short Answer

Expert verified
d. None of the above

Step by step solution

01

Understanding Money Supply Definitions

We need to understand the different definitions of money supply. \(\mathrm{M} 1\) includes the most liquid portions of the money supply. It is composed of currency, traveler's checks, and demand deposits (checking accounts). \(\mathrm{M} 2\) includes everything in \(\mathrm{M} 1\), but it also adds other slightly less liquid assets like savings accounts, money market accounts, and other time deposits.
02

Identifying the Role of Credit Cards in Money Supply Definitions

Credit cards are not considered a part of M1 or M2, as they are not a type of money themselves but are rather a line of credit provided by financial institutions. They facilitate transactions, but the actual money comes from the users' checking or saving accounts, which are already included in either M1 or M2 definitions.
03

Selecting the Correct Answer

Since credit cards are not included in either \(\mathrm{M} 1\) or \(\mathrm{M} 2\), the correct answer is: d. None of the above

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Most popular questions from this chapter

Which of the following is a problem with barter? a. Individuals will not exchange goods. b. Individuals' wants must coincide in order for there to be exchange. c. Goods can be exchanged, but services cannot. d. None of the above is a problem.

Which of these institutions has the responsibility to control the money supply? a. Commercial banks b. Congress c. U.S. Treasury Department d. Federal Reserve System

The major protection against sudden mass attempts to withdraw cash from banks is the a. Federal Reserve. b. Consumer Protection Act. c. deposit insurance provided by the FDIC. d. gold and silver backing the dollar.

M1 refers to a. the most narrowly defined money supply. b. currency held by the public plus checking account balances and traveler's checks. c. the smallest dollar amount of the money supply definitions. d. all of the above.

Which of the following is part of the M2 definition of the money supply, but not part of M1? a. Checkable Deposits b. Currency held in banks c. Currency in circulation d. Money market mutual fund shares
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