Practice
Answer first, then reveal. Anything you mark Unsure or Missed goes to your review queue.
6 of 6 have the textbook's official worked answer.
- 1
In many casinos, a person buys chips to use for gambling. Within the casino's walls, customers often can use these chips to buy food and drink or even a hotel room. Do chips in a gambling casino serve all three functions of money?
- 2
Can you name some item that is a store of value, but does not serve the other functions of money?
- 3
If you are out shopping for clothes and books, what is easiest and most convenient for you to spend: M1 or M2? Explain your answer.
- 4
For the following list of items, indicate if they are in M1, M2, or neither: a. Your $5,000 line of credit on your Bank of America card b. $50 dollars’ worth of traveler’s checks you have not used yet c. $1 in quarters in your pocket d. $1200 in your checking account e. $2000 you have in a money market account
- 5
Explain why the money listed under assets on a bank balance sheet may not actually be in the bank?
- 6
Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan if: a. The borrower has been late on a number of loan payments b. Interest rates in the economy as a whole have risen since the bank made the loan c. The borrower is a firm that has just declared a high level of profits d. Interest rates in the economy as a whole have fallen since the bank made the loan