Question

5. Suppose that gasoline in Toronto, Canada, costs 1.25 Canadian dollars per liter, and 1 U.S. dollar trades for 1.32 Canadian dollars. Explain how this information entails two unit-of-measurement problems for a typical U.S. citizen stopping to buy gas in Toronto who wants to know how much the gas “really” costs. (Hint: One of the unit-of-measurement problems involves money, and the other one involves measures of volume.)

6. For each of the following items, say whether it is counted in M1, M2, both, or neither.

Exs.: Five-dollar bills — M1 and M2; Green poker chips valued at $10 each – neither.

a. My checking account at Pathfinder Bank

b. Your savings account at Key Bank

c. General Motors commercial paper

d. Five-dollar Monopoly money bills

e. 150 shares of General Motors stock

f. General Motors corporate bonds

g. A $50,000 CD owned by Bill Gates

h. My 1,000 shares ($1,000) of Fidelity’s money-market mutual fund

i. My 1,000 shares of Fidelity’s Magellan (stock) mutual fund

j. McDonald’s gift certificates

7. a. What is the money stock? Give a basic definition, not a list of contents.

b. Explain how the money stock can be very important to the economy.

c. Explain why the money stock is perhaps not so important to the economy.

Answer 1