CC2105+Ch[1].16+Answer - CC2105 Introduction to...

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CC2105 Introduction to Macroeconomics Ch.16 Q&A 1. Economists argue that the move from barter to money increased trade and production. How is this possible? ANSWER: The use of money allows people to trade more easily. When it is easier to trade what one produces, people specialize. The  specialization creates greater production. 2. What is the difference between money and wealth? ANSWER: Money is defined as the set of assets in the economy that people regularly use to buy goods and services from other people.  Wealth includes all assets, both monetary and nonmonetary. 3. Which of the three functions of money are met by each of the following assets in the U.S. economy? a. paper dollar b. precious metals c. collectibles such as baseball cards, stamps, and antiques ANSWER: a. medium of exchange, store of value, unit of account b. store of value c. store of value 4. Are credit cards and debit cards money? What’s the difference between credit and debit cards? ANSWER: Neither credit cards nor debit cards are money, but credit cards are very different from debit cards. Credit cards are not a  medium of exchange, but are a means of deferring payment. Debit cards allow the user immediate access to deposits in a bank  account, which are part of the money supply. 5. What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for goods and  services? ANSWER: Commodity money has “intrinsic value,” or value in uses other than as money. Fiat money is established as money by  government. It has very little, if any, intrinsic value. Although fiat currency has no intrinsic value, people accept it in trade  when they are confident that others will also accept it. The government’s decree that fiat currency serves as legal tender  increases this confidence.
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