Homework 2
Read Chapter 3 and Chapter 4 in “The Economics and Money, Banking and Financial Markets” by
Mishkin.
Answer the following questions:
1. Question #1 in Questions and Problems, Chapter 3 (Page 65)
2. Question #2 in Questions and Problems, Chapter 3 (Page 65)
3. Question #8 in Questions and Problems, Chapter 3, (Page 66)
4. Question #10 in Questions and Problems, Chapter 3, (Page 66)
5. Question #14 in Questions and Problems, Chapter 3, (Page 66)
6. Are the following statements true or false? Explain!
• Money is similar to wealth.
• Money is different from income.
7. What are the three functions of money?
• Medium of exchange: Without money, trade must take place through…………….?
• Unit of account: If we have 3 goods, how many relative prices are there? What if we have 4
goods, or 10 goods?
• Store of value:
8. Are these following statements true or false? Please provide a brief explanation!
There are other assets that also serve as store of value.
Money’s usefulness as a store of value is superior to that of other assets.
9. Most of the time it is quite difficult to separate the three functions of money. Money performs its
three functions at all times, but sometimes we can stress one in particular. For each of the following
situations, identify which function of money is emphasized.
a. Brooke accepts money in exchange for performing her daily tasks at her office, since she knows
she can use that money to buy goods and services.
b. Tim wants to calculate the relative value of oranges and apples, and therefore checks the price
per pound of each of these goods as quoted in currency units.
c. Maria is currently pregnant. She expects her expenditures to increase in the future and decides
to increase the balance in her savings account.