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1、Chapter11
2、TheMonetarySystem147Chapter11TheMonetarySystemQuestions1.Usethethreefunctionsofmoneytodeterminewhethercreditcardsconstitutemoney.Answer:Acreditcardservesasamediumofexchange,whichisthefirstfunctionofmoney,becauseitiscommonlyacceptedtopayforgoodsandservices.However,acr
3、editcardisnotastoreofvalue,whichisthesecondfunctionofmoney,becauseacreditcardsimplydeferspaymentandcarriesthedebtthatmoneymusteventuallybeusedtosettle.Finally,acreditcardisnotaunitofaccount,whichisthethirdfunctionofmoney,becausethepricesofgoodsarenotexpressedintermsofnumberofc
4、reditcards.Sinceacreditcarddoesnotservethethreefunctionsofmoney,itisnotmoney.A-head:MONEYConcept:Functionsofmoney2.Howdoesfiatmoneydifferfromcommoditieslikegoldandsilverthatwereusedasmoney?Answer:Fiatmoneyisintrinsicallyworthlessbutisusedaslegaltenderbygovernmentdecree.Whereas
5、goldandsilverhaveintrinsicvalue,fiatorpapermoneyisvaluableonlybecauseotherpeoplewillacceptitasmoney.A-head:MONEYConcept:Fiatmoney3.HowistheM2moneysupplydefined?Answer:ThemoneysupplyorM2addstogethercurrencyincirculation,checkingaccounts,travelers’checks,savingsaccounts,andmoney
6、marketaccounts.A-head:MONEYConcept:Moneysupply4.Recallthediscussioninthechapteraboutthe“quantitytheoryofmoney.”a.Explainthequantitytheoryofmoney.b.Explainhowthepredictionsofthequantitytheoryofmoneyareborneoutbyhistoricaldata.©2015PearsonEducation,Inc.Chapter11
7、TheMonetarySyste
8、m147Answer:a.ThequantitytheoryofmoneyassumesthattheratioofmoneysupplytonominalGDPisconstant.Thisimpliesthat,ifmoneysupplygrowsby10percent,thennominalGDPalsoneedstogrowby10percenttokeeptheratioofmoneysupplydividedbynominalGDPconstant.Itfollowsthatthegrowthrateofmoneysupplyandth
9、egrowthrateofnominalGDPwillbethesame.GrowthRateofMoneySupply=GrowthRateofNominalGDPSubstitutingthegrowthrateofmoneysupplyforthegrowthrateofnominalGDP,wefindthat:GrowthRateofMoneySupply=InflationRate+GrowthRateofRealGDPRearrangingthisequation,Rate=GrowthRateofMoneySupply–Growth
10、RateofRealGDPSo,accordingtothequantitytheoryofmoney,inflation
