Imagine a world without money in which you must barter for everything you buy. What kinds of items would you have available for these trades?

Imagine a world without money in which you must barter for everything you buy. What kinds of items would you have available for these trades? Would you keep some stocks of items that you know lots of people are willing to accept? Would you really be bartering, or would you be using a commodity as money? How much longer would it take you to conduct all the transactions of a normal day? Now think about your own holdings of money today. How much money do you have in your pocket or wallet? How much do you have in the bank? How does the money you hold change over the course of a month? Of the money you’re holding, which items are part of M1 and which are part of M2? Are all the items in M2 means of payment? Now think about the role that you play in creating money. Every time you charge something to your credit card, you help the bank that issued it to create money. The increase in your credit card balance is a loan from the bank to you. The bank pays the seller right away. So the seller’s bank deposit and your outstanding balance increase together. Money is created. You contribute to the currency drain that limits the ability of your bank to create money when you visit the ATM and get some cash to pay for your late-night pizza. Of course, your transactions are a tiny part of the total. But together, you and a few million other students like you play a big role in the money creation process.


Discuss and describe the effect you have on this process when you pay for your late-night pizza delivery, or your other take-out food choices, using your bank debit or credit card. 

What is the effect if you obtained cash from the ATM to pay for this purchase?

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