Sample Solution

The brief introductory video provides a high level overview of the U.S Federal Reserve (Fed) and its effects on the money market. Credit cards and debit cards are not considered to be money as they are simply methods of payment which use existing funds from other sources, such as bank accounts or savings. This means that their value does not fluctuate with any changes in monetary policy (Kumar & Dutta 2018).

In contrast, “money” is generally defined as anything commonly accepted as a medium of exchange for goods and services (Burke 2016). Money can include cash, checks or electronic transfers but must have an intrinsic worth or value outside of itself. Credit cards and debit cards do not represent money that has been created by the Fed.

The statement above is incorrect, as purchases made by the Fed increase the amount of money available in circulation rather than decreasing it (Board Of Governors Of The Federal Reserve System 2019). When central banks such as the Fed purchase securities – either government bonds or other assets – new reserves become available to commercial banks within their jurisdiction. These increased levels of liquidity lead to lower borrowing costs for consumers which may eventually result in higher levels of economic growth.

To summarize, credit cards and debit cards are not strictly considered to be forms of `money’ but instead represent channels through which people make payments using existing funds held elsewhere. Increases in the monetary base resulting from open market operations conducted by central banks lead to higher levels of liquidity which may eventually stimulate economic growth.