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2. Throughout history, gold has been used as a medium of exchange. Gold ingots, gold coins, gold bars, whatever. a. Why do you think other commodities were not used as a medium of exchange for the same length of time? For example, think about why diamonds were seldom used as money. b. Why do you think paper fiat currency replaced gold? c. Is there a transaction cost problem with paper money? If so, explain how. If not, explain why not.

2. Throughout history, gold has been used as a medium of exchange. Gold ingots, gold coins, gold bars, whatever. a. Why do you think other commodities were not used as a medium of exchange for the same length of time? For example, think about why diamonds were seldom used as money. b. Why do you think paper fiat currency replaced gold? c. Is there a transaction cost problem with paper money? If so, explain how. If not, explain why not.

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Monetary System
Section: Chapter Questions
Problem 2QR
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2. Throughout history, gold has been used as a medium of exchange. Gold ingots, gold coins, gold bars, whatever. a. Why do you think other commodities were not used as a medium of exchange for the same length of time? For example, think about why diamonds were seldom used as money. b. Why do you think paper fiat currency replaced gold? c. Is there a transaction cost problem with paper money? If so, explain how. If not, explain why not.
Transcribed Image Text:2. Throughout history, gold has been used as a medium of exchange. Gold ingots, gold coins, gold bars, whatever. a. Why do you think other commodities were not used as a medium of exchange for the same length of time? For example, think about why diamonds were seldom used as money. b. Why do you think paper fiat currency replaced gold? c. Is there a transaction cost problem with paper money? If so, explain how. If not, explain why not.
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