Summary
John Williams recently returned from a trip on which he realized that he no longer needed cash-not even at fast food restaurants. Everyone accepts credit and debit cards these days. He becomes concerned that this may mean that money is going away. He begins to look into the idea of a cashless society. Certainly credit and debit cards will play a large role in a cashless society. He quickly realizes that to truly understand the impact of credit and debit cards, he will have to understand their impact on money demand (specifically M1 and M2). He researches the four key theories of money demand-The Quantity Theory of Money, Keynes 's Liquidity Preference Theory, Friedman's Modern Quantity Theory of Money, and the Baumol-Tobin Model-and comes up with a list of questions applying the impacts of credit cards and debit cards to the results of the models.
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Extract
Credit Cards, Debit Cards and Money Demand
INTRODUCTION
John Williams recently returned from a two week road-trip. On his trip he made an interesting observation. Cash and traveler's checks are no longer a necessary part of a "roadtripper' s" travel essentials. These days even fast food restaurants accept credit and debit cards. John has heard people speculate about a cashless society in the past and is beginning to wonder if it is starting. He worries that a "cashless" society means a "moneyless" society. John has taken several economics courses in college and has decided to use what he learned in these classes to help him further investigate the role of credit and ...See the full content of this document
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