Credit Cards, Debit Cards, and Money Demand: Instructor’s Notes

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\u27s Liquidity Preference Theory, Friedman\u27s 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