Check Your Understanding

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  1. Question

    Suppose you hold a gift certificate, good for certain products at participating stores. Is this gift certificate money? Why or why not?

  2. Question

    Although most bank accounts pay some interest, depositors can get a higher interest rate by buying a certificate of deposit, or CD. The difference between a CD and a checking account is that the depositor pays a penalty for withdrawing the money before the CD comes due—a period of months or even years. Small CDs are counted in M2, but not in M1. Explain why they are not part of M1.

  3. Question

    Explain why a system of commodity-backed money uses resources more efficiently than a system of commodity money.