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ANSWER:
QUESTION # 3
What are the three functions of money? Which of the functions do the following items
satisfy? Which do they not satisfy?
a. A credit card
b. A painting by Rembrandt
c. A subway token
ANSWER:
Credit card is certainly not unit of account. A credit card is not a unit of
account – a VAN, for example, does not cost 5 VISA card!
Credit card cannot be used as store of value since it doesn't have much
intrinsic value and it is not a medium of exchange (like money). In fact, credit
card is, arguably, a (negative) store of value because you are in fact spending
on the future purchasing power in the present time! You are actually
accumulating debt rather than transferring assets over time with the credit
card.
b. A Rembrandt painting is a store of value only.
c. A subway token, within the subway system, satisfies all three functions of
money. Yet outside the subway system, it is not widely used as a unit of
account or a medium of exchange, so it is not a form of money.
QUESTION# 4
Is most unemployment long term or short term? Explain your answer.
ANSWER:
Unemployment can be long term or short term. It can be frictional,
Meaning someone is between jobs; or it may be structural, as when
someone’s skills are no longer demanded because of a change in
technology.
Whether we conclude that most unemployment is short term or long term
depends on how we look at the data. Most spells of unemployment are
short. Yet most weeks of unemployment are attributable to the small
number of long term unemployed. Consider the data for a typical year,
1974, during which the unemployment rate was 5.6 percent. In that year,
60 percent of the spells of unemployment ended within one month, yet 69
percent of the weeks of unemployment occurred in spells that lasted two
or more months. Example, suppose that 10 percent people are
unemployed for part of a given year. Of these 10 people, 8 are
unemployed for 1 month, and 2 are unemployed for 12 months, totaling
32 months of unemployment. In this example, most spells of
unemployment are short;8 of the10 unemployment spells, or 80 percent,
end in 1 month. Yet most months of unemployment are attributable to the
long term unemployed: 24 of the 32 months of unemployment, or 75
percent, are experienced by the 2 workers who are unemployed for 12
months. Depending on whether we look at spells of unemployment or
months of unemployment, most unemployment can appear to be short or
long term.