MFI homework 3.docx - Jason Chiu Homework 3 1 There are...

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Jason Chiu Homework 3 1. There are other liquid assets that can be used to purchase goods and services. Money is a medium of exchange not currency, so things other than money can be used. 2. Since other prisoners will accept cigarettes as payment they accept them as well regardless of whether they smoke or not. It satisfies the double coincidence of wants because both parties are ready to use cigarettes to purchase goods and services. 5. A) medium of exchange B) unit of account C) store of value 6. The real was a poor store of value because of the rapid inflation. Dollars were more preferable to the real because it was a better value 10. Wine is perishable and more difficult to transport than gold. Wine goes
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Unformatted text preview: bad and costs more to ship so it’s a lot more volatile than gold, and the transactions costs would be more expansive than gold. 12. Currency, Checking deposits, Savings deposits, Common stock, Automobiles, Houses. 13. M1 is more liquid, M2 is the larger measure 15. Currency= M1 and M2 Money Market Mutual= M2 Small denomination= M2 Checkable deposits= M1 and M2 16. M1 will decrease while M2 will remain constant. Checking accounts are considered M1 so using that to pay for your mutual funds will decrease the checking account and thus M1. Both money market mutual funds and checking accounts are considered in M2 so they cancel each other out....
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