Economics: The Functions of Money

1. What are the functions of m oney? (5) cash is any(prenominal)thing that is gener in ally accepted as payment for goods and services and repayment of debts. The main(prenominal) functions of notes are distinguished as a medium of exchange, a unit of account, a store of value, and occasionally, a standard of deferred payment. Moneys most historic function is as a medium of exchange to facilitate transactions. Without capital, all transactions would have to be conducted by barter, which involves direct exchange of one good or service for another.The difficulty with a barter scheme is that in order to obtain a particular good or service from a supplier, 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 alone if there is a fork-like coincidence of wants amongst two transacting parties. break in of value. In order to be a medium of exchange, money must hold its value over meter t hat is, it must be a store of value.If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. 2. Explain why gold no longer performs the functions of money in the British economy? (5) The point of the gold-exchange standard is that it cannot farthest the piper must eventually be paid, but only in a disastrous reaction to the lengthy inflationary boom.As superlative balances piled up in France, the U. S. , and elsewhere, the slightest loss of confidence in the increasingly weakly and jerry-built inflationary structure was bound to lead to general collapse. and so the failure of inflated banks throughout 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 currently followed by the other countries of Europe.The gold exchange stand ard was one of the elite group collectivist bankers crowning accomplishments. But more coups were yet to come. In 1933 the bankers convince Roosevelt to call in all private holdings of gold essentially fetching the money of the people. Gold was outlawed. Paper money was no longer reformable in gold. This is why gold is not considered money in Britain. 3. why are credit broadsides not money? (4)Money, in any form, is generally recognized as a very liquid plus, that is an asset that can be quickly converted to cash or use as cash Credit banknotes work in the analogous manner as a loan. If you buy an item using a credit card, the credit card company will pay the storekeeper 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 represent 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 variant types of accounts savings accounts, current accounts and so on. But in this case, the bank kind of takes the money you are supposed to receive as pursuit from you. That affair becomes a source of income to the bank.5. What would you expect to happen to the site of interest if money supply increments? Why? Draw 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. ambition for borrowers reduces the real interest rate. The NOMINAL 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 rise the interest rate will rise up again