Question

1. Use the following scenario to answer all parts of the following questions: Diego opens a new checking account in Bank A with $5,000. (a) If Diego uses the debit card that accompanies this account, what function of money does his transaction serve? (b) Diego decides to deposit as much as he can into this account after his initial deposit to purchase a car. What function is his moncy serving? Explain, (c) Diego-sees an advertisement for the car he wants for $8,000. In this scenario, money is serving which purpose? Explain. (d) Diego writes a check against his account for the car. Which measurement of money will he be using for this purchase? (e) After the purchase of his car, Diego has $2,000 left over, $1,000 of which he decides to put into a certificate of deposit. What measurement of money is his $1,000CD a part of? THINK AS AN ECONOMIST: IDENTIFY AN ECONOMIC CONCEPY ILLUSTAATED BYAN EXAMPLE Economists analyze the behaviors of economic actors. They must have the ability to identify the economic concepts or principles illustrated by particular actions. By doing so, they have a conceptual framework for understanding the action. For example, economists observe financial institutions raising interest rates in the face of rising inflation. They recognize this as lenders attempting to maximize their real interest rates. The action demonstrates the firms' acting on their incentive to make profits: Apply the sirill Read the description of a series of transactions below identify the component of the money supply that is illustrated by each transaction. First State Bank grants a loan to Acme Enterprises to fund a new construction project. The bank electronically transfers $100000 to Acme. Acme's treasure writas a check to All-Pro Construction to cover the first month of construction work on the project. After two weeks of construction work, All-Pro issues payroil checks to its five workers. Harry who is one of those workers, has 10 percent of his wages automatically depositedin a money market account. Acme makes its first monthly payment on its ioan to first State Bank. The bank places 10 percer.

Answer 1

Diego's transactions with a debit card, saving for a car, and purchasing one serves as examples of money's functions. His use of a check is part of the M1 money supply while his certificate of deposit is part of M2. This illustrates how transactions affect and utilize different components of money supply.

Step-by-step explanation:

Diego's use of a debit card for transactions serves as a medium of exchange, allowing him to make purchases without the need for barter. When he deposits more money with the intention to buy a car, his money serves as a store of value, where it retains value over time until he makes the purchase. Upon seeing a car for sale at $8,000, money functions as a unit of account, providing a common measure for the value of the car. Writing a check for the car uses money within the M1 money supply, which includes checkable deposits and currency. Lastly, the $1,000 he puts into a certificate of deposit is part of the M2 money supply, which encompasses all of M1 plus savings accounts, small-denomination time deposits, and money market funds.

Applying this understanding to economic behaviors, the transaction series described illustrates different components of the money supply (M1 and M2) and the role of banks in facilitating economic activities.