Economics: The Functions of Money

1. What argon the functions of m sensationy? (5) Money is anything that is gener each(prenominal)y accepted as payment for goods and helps and repayment of debts. The main functions of money are high-minded as a medium of transfer, a unit of describe, a terminus of value, and occasionally, a standard of deferred payment. Moneys most important function is as a medium of exchange to facilitate transactions. Without money, all transactions would energize to be conducted by barter, which involves direct exchange of one good or service for a nonher.The difficulty with a barter system is that in order to bind a particular good or service from a provider, one has to possess a good or service of equal value, which the supplier also desires. In other words, in a barter system, exchange can take place only if there is a soprano coincidence of wants between two transacting parties. Store of value. In order to be a medium of exchange, money must hold its value oer time that is, it must b e a store of value.If money could not be stored for some period of time and still remain worth(predicate) in exchange, it would not solve the double coincidence of wants problem and thusly would not be adopted as a medium of exchange. 2. pardon why lucky no longer performs the functions of money in the British economy? (5) The point of the gold-exchange standard is that it cannot last the piper must at last be paid, but only in a disastrous reaction to the lengthy inflationary boom.As sterling balances piled up in France, the U. S. , and elsewhere, the slightest pass of confidence in the increasingly shaky and jerry-built inflationary social structure was bound to lead to general collapse. Thus the failure of inflated banks passim Europe, and the attempt of hard money. France to cash in its sterling balances for gold, led Britain to go off the gold standard completely. Britain was soon followed by the other countries of Europe.The gold exchange standard was one of the elite collectivist bankers crowning accomplishments. but much coups were yet to come. In 1933 the bankers convinced Roosevelt to call in all private holdings of gold essentially taking the money of the people. Gold was outlawed. cover money was no longer redeemable in gold. This is why gold is not considered money in Britain. 3. Why are credit tease not money? (4)Money, in any form, is generally recognized as a very liquid asset, that is an asset that can be apace converted to cash or used as cash assign bill of fares work in the same manner as a loan. If you buy an item using a credit display board, the credit card gild will pay the shopkeeper today and you will have an obligation to pay the credit card company when your credit card bill comes in. This obligation to the credit card company does not portray money.The money part of the transaction between you and the credit card company only comes into play when you pay your bill. So credit cards are not considered to be money. 4. Why is money in the current account of banks considered as money? (4) We have different types of accounts savings accounts, current accounts and so on. But in this case, the bank rather takes the money you are say to receive as interest from you. That interest becomes a source of income to the bank.5. What would you gestate to happen to the crop of interest if money supply increases? Why? set a Diagram. (12) If money supply increases, the rate of interest will decrease. This is because the more money is available, the more loans are available. Competition for borrowers reduces the authoritative interest rate. The noun phrase interest rate may increase if the increase in the real money supply causes inflation. But in the short run, the interest rate falls, but as prices airlift the interest rate will rise up again