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Chapter 10: Problem 3

What is the difference between near-money and money?

Short Answer

Expert verified
Money is universally accepted as payment for goods and services whereas near-money refers to assets easily convertible into cash but which may not be universally accepted for all transactions. The main difference lies in liquidity and acceptability.

Step by step solution

01

Definition of Money

Money refers to anything that is universally accepted as payment for goods and services or repayment of debts. This mainly includes coins and notes.
02

Definition of Near-money

Near-money, on the other hand, refers to assets that are easily convertible into cash with little to no loss of principal. This includes things like savings accounts, marketable securities, and treasury bills.
03

Contrasting Money and Near-money

The main difference between money and near-money is that money is a medium of exchange accepted everywhere, while near-money instruments may require time or involve a cost to be converted into money. However, both are used as stores of value.

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Most popular questions from this chapter

When the Fed conducts an open market purchase, it buys government securities. As a result, the money supply rises. Could the Fed raise the money supply by buying something other than government securities? For example, suppose the Fed were to buy apples instead of government securities. Would apple purchases (by the Fed) raise the money supply? Explain your answer.

Take a look at a Federal Reserve note. On it, you will read the following words: "This note is legal tender for all debts, public and private." What part of the definition of money does this message refer to?

What does it mean to say that the United States has a fractional reserve banking system?

Define: a. barter economy b. transaction costs c. money d. medium of exchange e. unit of account f. store of value g. fractional reserve banking

The Fed wants to increase the money supply. a. What can it do to the reserve requirement? b. What type of open market operation can it conduct? c. What can it do to the discount rate?
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