1. Consider these scenarios:
Dash Rip rock goes shopping at the local music store he sees a CD of his favorite singer Elvis Costello for only $5. Dash picks up the CD to buy it and then at the last minute he sees another CD of another one of his favorite performers, the Beasty Boys, for $7 and next to it is his favorite all time girl band, the Spice Girls for only $10. This is money acting as?
Crunch Hardtack visits the local zoo. He notices there is a charge to see each animal. It costs $45 to see the monkeys and $78 to see the ant eaters and $94 to see the snails. Being a snail lover, Crunch gives the clerk $94 and goes in and sees the snails. This is money acting as?
Bolt Upright wants to take a vacation. He searches on the internet to find the perfect spot to visit. He finds a 3-week vacation in Siberia for only $1000. Then he finds two weeks of fun in Death Valley, California for only $1500. He also notices that he could spend one wonderful week of fun and relaxation in the Sahara Desert for only $2000. At the last minute Bolt changes his mind and decides to put the vacation off and place his money in a savings account. This is money acting as?
Johnny B Wise has $5000 in his savings account.
What function does money play for Dash, Crunch, and Bolt? Explain why Johnny's money is or is not part of the M1, and/or M2 money supply.
2. Do some research and find the M1 and M2 levels of money supply in the U.S. economy for the past 20 years. After you have found this information, begin to think like an economist and explain how you feel these levels of both M1 and M2 have affected GDP during the same time period.