Chapter 3 - Problem Set.pdf

With overdraft feature making transactions for large

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with overdraft feature), making transactions for large amounts much easier and greatly reduce the loss from theft, and provide convenient receipts for purchases. Problems with a payments system based on cheques: (i) takes time to get cheques from one place to another and may take several business days before a bank will let the account holder to use the fund from a cheque deposited; and (ii) all the paper shuffling required to process cheques is costly.

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ECO349 2011 Winter Chapter 3 Problem Set Michael Ho 2/2 2(a). Given an example of a simple-sum index of money components. Discuss its major characteristic and implications. Why sometimes weighted monetary aggregates are better than simple-sum indices? M = x 1 + x 2 + … + x n where M is a simple-sum index with n monetary components ( x ). Using simple-sum indices in which all monetary components are assigned a constant and equal weight, which implies all monetary components contribute equally to the money total and are dollar-for-dollar perfect substitutes.
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