SOLUTION6MANUAL6for6MONEY,6Banking,6Financial6M arkets6&6Institutions62nd6Edition6 by6Brandl6Michael,6All6Chapters616-624

2-1 Section6Review 1. What6is6the6difference6between6money6and6currency?6When6are6they6the6same?6Why6might6they6be6di fferent? ANS:6Money6is6anything6generally6accepted6in6exchange6for6goods6&6services.6Currency6is6issued6by6a6b ank6or6the6government,6but6currency6is6not6necessarily6money.6They6are6the6same6when6they6are6accep ted6in6exchange6for6goods6and6services.6Currencies6can6stop6being6money6if6people6don’t6accept6them6in 6exchange6for6goods6and6services.6If6a6group6of6people6stop6using6currency6to6get6goods6and6services6b ut6instead6use6bananas,6then6the6bananas6are6the6money. 2. How6many6prices6must6a6barter6economy6have6if6the6economy6has6four6goods?6What6if6it6has64006 goods?6Explain6why6having6a6money6in6the6second6case6is6beneficial. ANS:646goods6=666prices;64006goods6=679,8006prices.6Money6allows6us6to6specialize6and6reduce6our6sear ch6cost.6 Money6allows6us6to6reduce6the6number6of6stated6prices6we6need. 3. You6read6a6news6story6about6a6country6that6is6suffering6from6rapid,6ongoing6increases6in6the6cost6of6 living.6Which6characteristic6of6money6is6being6directly6negatively6impacted6in6that6economy? a. Unit6of6account b. Medium6of6exchange c. Store6of6value d. Double6coincidence6of6wants6 ANS:6C 2-2 Section6Review 1. Bobby6is6confused.6He6states:6“Since6prisoners6are6not6allowed6to6smoke6in6prisons6any6longer, Radford’s6examples6of6cigarettes6in6POW6camps6no6longer6applies.”6How6would6you6explain6to6Bobby6h ow6Radford’s6story6demonstrates6the6concepts6of6the6criteria6of6money,6as6well6as6the6importance6of6cha nges6in6the6money6supply? ANS:6Any6asset6that6is6able6to6be6standardized,6divisible,6durable6and6in6demand6could6be6currency,6as6l ong6as6it6is6a6medium6of6exchange,6is6a6unit6of6account6and6has6store6of6value.6 Cigarettes6were6money. 2. Proponents6of6the6Gold6Standard,6or6using6gold6as6money,6often6argue6that6it6will6keep6inflation6under6 control.6How6does6the6experience6of6Europe6in6the6sixteenth6century6raise6doubts6about6that6claim? ANS:6If6people6start6to6hoard6gold6or6silver,6there6may6not6be6enough6money,6and6an6economy6could6s lide6into6recession.6 If6gold6or6silver6increases6too6rapidly6the6economy6could6suffer6inflation. 3. Ricardo6and6Friedman6agree6that6if6the6money6supply6increases6“too6quickly”6the6following6happens: a. The6rate6of6inflation6decreases. b. The6rate6of6real6economic6growth6increases. c. The6rate6of6inflation6increases. d. The6level6of6employment6decreases. ANS:6C 2-3 Section6Review 1. A6critic6of6money6economics6once6stated,6“if6you6cannot6measure6the6money6supply6accurately,6it6is6n ot6worth6discussing6at6all.”6How6would6you6refute6this6statement? ANS:6Due6to6changes6in6financial6markets,6financial6innovation6and6changes6in6the6way6banks6operate,6le d6to6the6decline6in6the6usefulness6of6M26as6a6monetary6aggregate. 2. Economists6are6searching6for6a6“good”6measurement6of6the6money6sup