Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Question
Chapter 30, Problem 1BCQ
To determine
The reason if the PayPal account should be counted in the money supply or not.
Introduction: PayPal refers to an electronic fund transfer system that allows all its users to make online transactions. With PayPal one can send and receive payments and even make or receive donations.
PayPal also provides the facility to all the users with PayPal account to set their own currency conversion options.
Expert Solution & Answer
Explanation of Solution
An electronic device to make transactions, PayPal should not be counted in the money supply.
PayPal is a form of virtual wallet that is created online for the purpose of making online transactions. This remains same as to withdraw the cash from bank and keep it in the wallet. This amount in the PayPal wallet remains the same until any transaction is carried away.
Therefore, the PayPal account need not be counted in the money supply as it does not put any affect on the supply of money in economy. Rather it just gets transferred from a bank account to the PayPal account online.
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