Chapter 16, Problem 1CQQ

To determine

The supply of money in the economy.

Answer to Problem 1CQQ

Option 'c' is the correct answer.

Explanation of Solution

Any commodity or item that a community accepts as payment for the goods and services is known as money. It can be any commodity that the consumer gives in exchange for goods and services.  The banks are financial institutions that play an important role in a financial market.

Option (c):

The use of the lines of credit which are accessible with credit card cannot be considered as money supply because it is a debt instrument and there is no supply of money. Therefore, the lines of credit accessed through credit card are not included in the money supply. Thus, option 'c' is correct.

Option (a):

The metal coins are a form of money that is used by an economy for the purpose of the exchange of goods and services. They are accepted as payment for the goods and services. Hence, they are included in the money supply. Thus, option 'a' is incorrect.

Option (b):

Paper currency is a widely accepted form of money all over the world. Hence, it is included in the money supply of the economy. Thus, option 'b' is incorrect.

Option (d):

Bank balances that are accessible with debit cards are the savings of the customers and they are included in the money supply of the economy. When the bank balance increases, the money supply increases, and vice versa. Thus, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Money: Money is any item that is accepted as payment for the goods and services provided by an economy.

Banks: Banks are financial institutions that accept deposits of money from the general public and use it to provide loans to the public.