BÀI TẬP LÝ THUYẾT TÀI CHÍNH TIỀN TỆ - CÓ ĐÁP ÁN

1. Why is simply counting currency an inadequate measure of money?
Because there are other liquid assets (cash in Hand, Marketable Securities…)
which are similar to currency that can be used as money to purchase goods and
services.
2. In prison, cigarettes are sometimes used among inmates as a form of
payment. How is it possible for cigarettes to solve the “double
coincidence of wants” problem, even if a prisoner does not smoke?
Because even if he or she were a non-smoker, since the prisoner knows that
others in the prison will accept cigarettes as a form of payment, they themselves
would be willing to accept cigarettes as a form of payment. So, rather than prisoners
having to barter and trade favors, cigarettes satisfy the double coincidence of wants
in that both parties to a trade stand ready to use them to "purchase" goods or
services.
3. Three goods are produced in an economy by three individuals:
Good Producer
Apples Orchard owner
Bananas Banana grower
Chocolate Chocolatier
If the orchard owner likes only bananas, the banana grower likes only
chocolate, and the chocolatier likes only apples, will any trade between these
three persons take place in a barter economy? How will introducing money
into the economy benefit these three producers?
Because the orchard owner likes only bananas but the banana grower doesn't
like apples, the banana grower will not want apples in exchange for his bananas,
and they will not trade. Similarly, the chocolatier will not be willing to trade with
the banana grower because she does not like bananas. The orchard owner will not
trade with the chocolatier because he doesn't like chocolate. Hence, in a barter
economy, trade among these three people may well not take place, because in no
case is there a double coincidence of wants. However, if money is introduced into
the economy, the orchard owner can sell his apples to the chocolatier and then use
the money to buy bananas from the banana grower. Similarly, the banana grower

can use the money he receives from the orchard owner to buy chocolate from the


chocolatier, and the chocolatier can use the money to buy apples from the orchard
owner. The result is that the need for a double coincidence of wants is eliminated,
and everyone is better off because all three producers are now able to eat what they
like best.
4. Why did cavemen not need money?
In cavemen’s primitive economy, they did not specialize in producing one type
of good and they had little need to trade with other cavemen.
5. Most of the time it is quite difficult to separate the three functions of
money. Money performs its three functions at all times, but sometimes we can
stress one in particular. For each of the following situations, identify which
function of money is emphasized.
a. Brooke accepts money in exchange for performing her daily tasks at her
office, since she knows she can use that money to buy goods and services.
b. Tim wants to calculate the relative value of oranges and apples, and
therefore checks the price per pound of each of these goods as quoted in
currency units.
c. Maria is currently pregnant. She expects her expenditures to increase in the
future and decides to increase the balance in her savings account
a)
b)
c)

Medium of exchange
Unit of account
Store of value

6. In Brazil, a country that underwent a rapid inflation before 1994, many

transactions were conducted in dollars rather than in reals, the domestic
currency. Why?
Because of the rapid inflation in Brazil, the domestic currency, the real, was a
poor store of value. Thus many people preferred to hold dollars, which were a better
store of value, and used them in their daily shopping
7. Was money a better store of value in the United State in the 1950s than
in the 1970s? Why or why not? In which period would you have been more
willing to hold money?


Because money was losing value at a slower rate (the inflation rate was lower)
in the 1950s than in the 1970s, it was a better store of value then, and you would
have been willing to hold more of it.
8. Why have some economists described money during a hyperinflation as
a “hot potato” that is quickly passed from one person to another?
Money loses its value at an extremely rapid rate in hyperinflation, so you want
to hold it for as short a time as possible. Thus money is like a hot potato that is
quickly passed from one person to another.
9. Why were people in the United States in the nineteenth century
sometimes willing to be paid by check rather than with gold, even though they
knew there was a possibility that the check might bounce?
Because a check was so much easier to transport than gold, people would
frequently rather be paid by check even if there was a possibility that the check
might bounce. In other words, the lower transactions costs involved in handling
checks made people more willing to accept them.
10. In ancient Greece, why was gold a more likely candidate for use as
money than wine?
Because Wine is more difficult to transport than gold and is also more
perishable. Gold is thus a better store of value than wine and also leads to lower
transactions cost. It is therefore a better candidate for use as money.

11. If you use an online payment system such as PayPal to purchase goods
or services on the Internet, does this affect the M1 money supply, the M2
money supply, both, or neither? Explain.
PayPal is used to make online money transfers and serves as an alternative to
paying with traditional paper money, such as currency, checks, etc. Online
payments would not affect neither M1 or M2 because the aggregate amount of
money in M1 or M2 does not change.
12. Rank the following assets from most liquid to least liquid:
a. Checking account deposits
b. Houses


c. Currency
d. Automobiles
e. Savings deposits
f. Common stock
1.Currency
2.Checking account
3.deposits
4.Savings deposits
5.Common Stock
6.Automobiles
7.Houses
13. Which of the Federal Reserve’s measures of the monetary aggregates—
M1 or M2—is composed of the most liquid assets? Which is the larger
measure?
•
•

M1 is most liquid

M2 is the largest measure because it includes all of M1 + smalldenomination time deposits + saving deposits and money market deposit
accounts + money market mutual fund shares.

14. It is not unusual to find a business that displays a sign
saying “no personal checks, please.” On the basis of
this observation, comment on the relative degree of
liquidity of a checking account versus currency.
Based on this observation, a checking account must be less liquid than currency.

15. For each of the following assets,
monetary aggregates (M1 and M2) includes them:
a. Currency
b. Money market mutual funds

indicate

which

of

the


c. Small-denomination time deposits
d. Checkable deposits
• M1 includes currencies, checkable deposits.
•

M2 includes M1 and, in addition, short-term time deposits in banks and
certain money market funds

16.Assume that you are interested in earning some return on the idle
balances you usually keep in your checking account and decide to buy some
money market mutual funds shares by writing a check. Comment on the effect
of your action (with everything else the same) on M1 and M2.
Your actions will reduce your checking account balance and increase your
holdings of money market mutual fund shares. Considering this transaction only,
M1 will decrease as one of its components decreased. M2 will remain constant, as
M2 is composed of all items that add up to M1 plus some other types of money that
are not so liquid to be considered part of M1. One of these categories is money
market mutual fund shares. The decrease in your checking account balance is offset
by the increase in money market mutual fund shares, and therefore M2 remains
constant.
17. . In April 2009, the growth rate of M1 fell to 6.1%, while the growth
rate of M2 rose to 10.3%. In September 2013, the year-over-year growth rate
of the M1 money supply was 6.5%, while the growth rate of the M2 money
supply was about 8.3%. How should Federal Reserve policymakers interpret
these changes in the growth rates of M1 and M2?
During the period in question, the M1 growth rate increased by 17 percentage
points, while the M2 growth rate increased by only 3 percentage points. Although
both measures are moving in the same direction, the magnitude of the difference in
growth rates between the two makes it difficult to judge the appropriateness of
monetary policy by just looking at the money supply measures alone. For instance,
if one focused just on the M2 money supply, knowing the economy was in severe
economic contraction would suggest that the growth rate of M2 perhaps should be
even higher than the 3 percentage point increase over this time. On the other hand,
if one just focused on the M1 growth increase of 17 percentage points, this may
seem alarmingly high and suggest an inflationary problem in the future.

18. Suppose a researcher discovers that a measure of the total amount of
debt in the U.S. economy over the past twenty years was a better predictor of
inflation and the business cycle than M1 or M2. Does this discovery mean that
we should define money as equal to the total amount of debt in the economy?
Not necessarily. Although the total amount of debt has predicted inflation and
the business cycle better than M1 or M2, it may not be a better predictor in the
future. Without some theoretical reason for believing that the total amount of debt
will continue to predict well in the future, we may not want to define money as the
total amount of debt.