Author Question: Credit cards are a popular means of payment. Why are credit card accounts not included in M1 or M2? ... (Read 107 times)

drink · **on:** Jun 30, 2018

Credit cards are a popular means of payment. Why are credit card accounts not included in M1 or M2? Are credit cards of no relevance to these money measures?

What will be an ideal response?

Question 2

On the modern Phillips curve, the initial impact of an increase in the world price of steel is shown by ________.

A) an upward movement along the Phillips curve to a higher inflation rate
B) an upward shift of the Phillips curve leading to higher inflation rates for any unemployment rate
C) a downward shift of the Phillips curve leading to lower inflation rates for any unemployment rate
D) a downward movement along the Phillips curve to higher unemployment rates
E) none of the above

Swizqar · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A purchase using a credit card is the same as taking out a loan. In the transaction, no medium of exchange passes between the buyer and the seller. At a later time, the seller receives a payment, and the buyer must give a corresponding amount to the credit card issuer. The use of credit cards does tend to reduce M1 relative to M2, since many transactions can be covered by a single monthly payment on ones credit card account, reducing the desired quantities of cash and checking account balances.

Answer to Question 2

B