According to NPD's most recent “Checkout Receipt Data,” credit cards now make up 82.1% of all...

According to NPD's most recent “Checkout Receipt Data,” credit cards now make up 82.1% of all in-store retail transactions in the U.S. amid coronavirus. The remaining percentage is cash transactions.” Are credit cards considered part of the U.S. money supply? Why or why not?

Expert Solution

Money is a capital commodity that can be spent; it is an established commodity that can be used to buy items or services. The Federal Reserve requires financial instruments including currencies and deposits when estimating the money supply. Credit card loans, in comparison, are liabilities. Each purchase with a credit card generates a new loan from the issuer of the credit card. The debt finally has to be repaid with funds from a financial asset. For families, a credit card-related line of credit is not a financial commodity, but rather a flexible borrowing vehicle for funding a transaction.

Credit cards offer a tool that is an alternative to spending money to purchase goods and services. Credit card purchases, however, rather than buying commodities from an actual financial asset, like the kinds of financial assets known as money and included in the money supply figures, produce debts that must be repaid later by the buyer-borrower.

A "revolving credit" is the type of mortgage loans that involves credit card lending; as of October 2005, this metric was $801.4 billion on a seasonally adjusted basis.

Rahul Sunny answered 1 year ago

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