Chapter3ProblemSet

Chapter3ProblemSet - ECO349 2010 Winter Chapter 3 Problem...

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ECO349 – 2010 Winter Chapter 3 Problem Set Michael Ho 1/2 1(a). What is a payment system? Payments system – the method of conducting transactions in the economy. 1(b). Discuss the advantage(s) and disadvantage(s) of commodity money as payments system. Commodity money – money made up of precious metals or another valuable commodity (an object that clearly has value to everyone is likely candidate to serve as money). The problem with a payments system based exclusively on precious metals is that such a form of money is very heavy and is hard to transport from one place to another, and it is not easily divisible without wastage. 1(c). What is Fiat money? Discuss the advantage(s) and disadvantage(s) of paper currency as payments system. Fiat money – paper currency decreed by governments as legal tender (legally it must be accepted as payment for debts) but not convertible into coins or precious metal. Paper currency embodied a promise that it was convertible into coins or into a quantity of precious metal. Paper currency has the advantage of being much lighter than coins or
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Chapter3ProblemSet - ECO349 2010 Winter Chapter 3 Problem...

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