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2. Discuss the advantages and disadvantages of using the following commodities as money. A.
Bricks B. Corn C. Pearls
Solution
Type Definition Examples Advantage(s) Disadvantage(s) Commodity Physical assets with a
relatively high degree of liquidity due to their uniformity, durability, divisibility, portability, and
ease of authentication Clamshells; tobacco; gold Self-equilibrating Inelastic supply; storage,
transportation, division, wastage, and authentication costs Representative Claims on
commodities in the actual physical possession of the money issuer Tobacco notes; gold deposit
notes Easier/cheaper to store, transport, divide, safekeep, and authenticate than the underlying
commodity Default and counterfeiting risk; supply elasticity limited by the underlying
commodity Credit Claims on the general assets of the money issuer and NOT fully backed by
commodity, fiat, or other monies Bank deposits; banknotes Supply elasticity limited only by the
reserve ratio Default and counterfeiting risk; some inflation risk Fiat Legal tender enforced by
government decree Federal Reserve Notes Extremely elastic supply Inflation risk; counterfeiting
risk

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2- Discuss the advantages and disadvantages of using the following com.docx

  • 1. 2. Discuss the advantages and disadvantages of using the following commodities as money. A. Bricks B. Corn C. Pearls Solution Type Definition Examples Advantage(s) Disadvantage(s) Commodity Physical assets with a relatively high degree of liquidity due to their uniformity, durability, divisibility, portability, and ease of authentication Clamshells; tobacco; gold Self-equilibrating Inelastic supply; storage, transportation, division, wastage, and authentication costs Representative Claims on commodities in the actual physical possession of the money issuer Tobacco notes; gold deposit notes Easier/cheaper to store, transport, divide, safekeep, and authenticate than the underlying commodity Default and counterfeiting risk; supply elasticity limited by the underlying commodity Credit Claims on the general assets of the money issuer and NOT fully backed by commodity, fiat, or other monies Bank deposits; banknotes Supply elasticity limited only by the reserve ratio Default and counterfeiting risk; some inflation risk Fiat Legal tender enforced by government decree Federal Reserve Notes Extremely elastic supply Inflation risk; counterfeiting risk