Macroeconomics (credit card impact) - Coursework Example

Impact of Credit Cards on the Economy The current of technology and the economy has forced many people to rely on credit cards and other creditinstruments to make purchases. However, a deep analysis reveals that credit cards cannot be considered as money, since, in macroeconomic sense, money falls into three broad categories, M1, M2 and M3. The first category of money consists of currency, demand deposits, and other liquid deposits against which credit can be taken (Zandi and Singh, 2010). The second category consists of M1, time deposits, and other deposits in banks, while the third category consists of M2 and large denomination time deposits (Zandi and Singh, 2010).

Going by this definition of money, it is evident that credit cards do not qualify as money.However, credit cards are still a common mode of purchase among the citizens because of three main reasons. Credit cards offer a simplified method of purchase for consumers, since they do not have to carry hard cash (Zandi and Singh, 2010). The second reason is that credit cards offer a quick method out of emergencies, since individuals do not have to travel long distances to find cash (Zandi and Singh, 2010).

The credit cards benefits that come along with the use of the card is also an advantage, since most credit facilities expect an interest charge, so they offer incentives (Zandi and Singh, 2010).According to Debt Resources (2012), the main impact of credit cards on the economy is the increase in debts in the economy, since many people accrue interest payments that they cannot afford to pay. Many of the debts that are accrued to credit cards end up being written off as bad debts, which reduces the credit history of most consumers in the market.

This reduces the spending power of consumers, since they have to allocate their earnings to paying off debts, which in turn reduces the economic growth of a country. ReferencesDebt Resources. (2012). Economic Impact of Credit Card Debts. Retrieved on February 17, 2012 from: Zandi, M., and Singh, V. (2010). The Impact of Electronic Payments on Economic Growth. Moody’s Economy.