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Chapter 12: Problem 11

Why isn't a credit card money?

Short Answer

Expert verified
A credit card isn't considered money because it fails to meet the three key functions of money: serving as a medium of exchange, a store of value, and a unit of account. Instead, it is a tool for accessing credit.

Step by step solution

01

Define money

Money, in its traditional form, fulfills three key functions. It serves as a medium of exchange, a unit of account, and a store of value. In other words, it facilitates transactions, provides a measure to compare the value of goods and services, and enables value to be stored and saved for future use.
02

Define credit card

A credit card, on the other hand, is a financial product that allows holders to borrow funds, usually at a point of sale. It charges interest and provides the option to pay a minimum amount each month.
03

Compare credit card and money

A credit card does not meet the criteria for being a medium of exchange in itself; it facilitates transactions in that it allows an individual to purchase goods or services now and pay for them later. However, payments are made by transferring debts, not by exchanging a medium (like cash or bank funds). Additionally, a credit card is not a store of value (it's a means to access credit, not a way to store wealth), and it is not a unit of account (prices are not quoted in credit card debt).

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