Principles of Economics- Mankiw (5th) 590

Principles of Economics- Mankiw (5th) 590 - 610 PA R T T E...

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for impurities. When an economy uses gold as money (or uses paper money that is convertible into gold on demand), it is said to be operating under a gold standard. 610 PART TEN MONEY AND PRICES IN THE LONG RUN T HE ROLE OF SOCIAL CUSTOM IN THE MON - etary system is most apparent in for- eign cultures with customs very different from our own. The following article describes the money on the is- land of Yap. As you read the article, ask yourself whether Yap is using a type of commodity money, a type of fiat money, or something in between. F i x e d A s s e t s , o r W h y a L o a n i n Ya p I s H a r d t o R o l l O v e r B Y A RT P INE Y AP , M ICRONESIA —On this tiny South Pa- cific island, life is easy and the currency is hard. Elsewhere, the world’s troubled monetary system creaks along; floating exchange rates wreak havoc on currency markets, and devaluations are common- place. But on Yap the currency is as solid as a rock. In fact, it is rock. Lime- stone to be precise.
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