Principles of Economics- Mankiw (5th) 592

Principles of Economics- Mankiw (5th) 592 - 612 PA R T T E...

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612 PART TEN MONEY AND PRICES IN THE LONG RUN CASE STUDY WHERE IS ALL THE CURRENCY? One puzzle about the money stock of the U.S. economy concerns the amount of currency. In 1998 there was about $460 billion of currency outstanding. To put this number in perspective, we can divide it by 205 million, the number of adults (age sixteen and over) in the United States. This calculation implies that the average adult holds about $2,240 of currency. Most people are surprised to learn that our economy has so much currency because they carry far less than this in their wallets. Who is holding all this currency? No one knows for sure, but there are two plausible explanations. The first explanation is that much of the currency is being held abroad. In foreign countries without a stable monetary system, people often prefer U.S. dollars to domestic assets. It is, in fact, not unusual to see U.S. dollars being used overseas as the medium of exchange, unit of account, and store of value. The second explanation is that much of the currency is being held by drug
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