FAC241 - Money and Credit, Monsoon 2024

Money is primarily distinguished by its function as a medium of exchange.

The three primary functions of money are as a medium of exchange, a unit of account, and a store of value.

Money minimizes transaction costs by allowing quicker and simpler exchanges compared to bartering.

<p>Credit is a sum of money that is lent and expected to be repaid, usually with interest.</p> Signup and view all the answers

<p>Durability ensures that money can be used repeatedly over time without deteriorating significantly.</p> Signup and view all the answers

<p>Money supply refers to the total amount of money available in an economy at a specific time.</p> Signup and view all the answers

<p>Money is preferable because it is universally accepted and does not require repayment like credit.</p> Signup and view all the answers

<p>Easy divisibility allows money to be used in transactions of varying sizes, facilitating precise payments.</p> Signup and view all the answers

<p>Money eliminates the need for a double coincidence of wants, facilitating smoother exchanges.</p> Signup and view all the answers

<p>It must be widely accepted and easily standardized.</p> Signup and view all the answers

<p>Money provides a common measure for expressing the values of all goods and services.</p> Signup and view all the answers

<p>Money allows individuals to focus on their best skills without worrying about bartering.</p> Signup and view all the answers

<p>Fluctuating values of money create uncertainty in pricing and can complicate financial planning.</p> Signup and view all the answers

<p>Shoppers would be unable to easily compare prices, as they would need lists of multiple prices for each item.</p> Signup and view all the answers

<p>Money significantly lowers transaction costs and saves time in exchanges.</p> Signup and view all the answers

<p>It would hinder transactions as people could not make change for purchases.</p> Signup and view all the answers

<p>Money serves as the backbone of capitalism, facilitating transactions and influencing economic choices.</p> Signup and view all the answers

<p>Consumer choice is sovereign in a capitalist economy, allowing individuals to make decisions based on their preferences.</p> Signup and view all the answers

<p>A profit-based approach focuses on earning high profits, while a need-based approach prioritizes fulfilling consumer demands.</p> Signup and view all the answers

<p>The types of money are coins (fiat money), currency notes (must be accepted), and deposit money (demand deposits).</p> Signup and view all the answers

<p>Income is distributed in monetary form, reflecting the transactions and profits earned.</p> Signup and view all the answers

<p>'Old money' is defined as a durable store of value and a medium of exchange used in earlier economic ages.</p> Signup and view all the answers

<p>'New money' will function more as a measure of value and an information carrier rather than a medium of exchange.</p> Signup and view all the answers

<p>A 'unplanned economy' refers to a capitalist system where economic activity and production decisions are largely determined by market forces.</p> Signup and view all the answers

<p>Monarchies served as standards bodies, guaranteeing that coins contained the proper amount of precious metal.</p> Signup and view all the answers

<p>Paper money shifted money from being a store of value to a means of measurement, backed by the issuing government.</p> Signup and view all the answers

<p>Money designated as legal tender must be accepted for debts and obligations as determined by the government.</p> Signup and view all the answers

<p>Many people prefer to store their wealth in stocks, bonds, and mutual funds.</p> Signup and view all the answers

<p>It means that money is now often viewed more as a way to communicate value rather than a primary means for transactions.</p> Signup and view all the answers

<p>The transition allowed for easier trade by increasing the amount of money in circulation without metal constraints.</p> Signup and view all the answers

<p>'New money' reflects a modern view where cash is held only temporarily for transactions, not as long-term wealth.</p> Signup and view all the answers

<p>Paper money is often seen as less reliable for storing value due to inflation and the availability of better investment options.</p> Signup and view all the answers

<p>The monetary base consists of monetary gold stock, reserve assets like government securities and foreign exchange reserves, and outstanding central bank credit.</p> Signup and view all the answers

<p>If a community prefers payments by cheque over cash, the total volume of money maintained will be larger, leading to an increased money supply.</p> Signup and view all the answers

<p>Monetisation refers to the extent to which money is used in exchanges; a fully monetised economy requires a greater money supply compared to a partially monetised one.</p> Signup and view all the answers

<p>The cash reserve ratio is crucial because it influences the multiplier effect for credit creation by banks, impacting the overall money supply.</p> Signup and view all the answers

<p>Credit creation by banks expands the money supply through the generation of bank money or credit money, exponentially increasing the money flowing in the economy.</p> Signup and view all the answers

<p>The community's choices affect the overall demand for money and can reasoningly alter the dynamics of the money supply depending on their preferences.</p> Signup and view all the answers

<p>The cash reserve ratio dictates a bank's cash holdings relative to total deposits, thus determining the surplus amount available for issuing loans.</p> Signup and view all the answers

<p>The money supply function represents how the supply behavior in the money market is structured, reflecting various determinants such as the monetary base and CRR.</p> Signup and view all the answers