Question

sho the 13. Th 6. Explain how each of these events affects the amount of M1 that people hold: a. ATMs are invented. b. Credit cards are invented. c. Debit cards are invented. d. Stored-value cards are invented. e. Interest rates on bonds rise. inf ma me vis

Answer 1

6) a) M1 is composed of physical currency and coin, demand deposits, traveler's check, other checkable deposits , M1 includes the most liquid portions of money.

a) if ATM s are invented thus common people can withdraw money any time needed thus the amount of liquid money in hand will be more m1 will increase.

b) Credit card gives the customer a preset credit limit which can be used to pay purchases without having to pay cash . thus the economy can be cashless if the use of credit card increases. M1 will fall

c) Debit card can be used to make purchases without cash this again invention of debit card will decrease the amount of M1.

d) Higher interest rate on bond increases the bond price thus increases the cost of borrowing, fall in disposable income thus consumer spending will be less , people will have less money on hand thus M1 will fall