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Questions and Answers
What is the meaning of the word 'money' derived from?
What are the primary functions that distinguish money?
What is the basis of nearly all contemporary money systems?
What does the money supply of a country comprise?
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How is the value of unbacked fiat money derived?
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Study Notes
Origins of Money
- The word "money" is derived from the Latin word "moneta," which means "mint" or " coin"
Primary Functions of Money
- Medium of exchange: enables individuals to trade goods and services
- Unit of account: serves as a standard unit for measuring the value of goods and services
- Store of value: allows individuals to save and store value for future use
- Standard of deferred payment: enables individuals to settle debts and obligations at a future date
Basis of Contemporary Money Systems
- Fiat money system: most contemporary money systems are based on fiat money, which has no intrinsic value but is backed by government decree
Components of the Money Supply
- Physical currency: coins and banknotes in circulation
- Digital money: deposits in commercial banks and other financial institutions
- Central bank reserves: funds held by the central bank to regulate the money supply
Value of Unbacked Fiat Money
- Derived from the trust and confidence that individuals and businesses have in the currency
- Backed by the government's promise to accept it in payment of taxes and debts
- Maintained by the central bank's management of the money supply and interest rates
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Description
Test your knowledge of money and its functions with this quiz. Explore the concepts of medium of exchange, unit of account, store of value, and standard of deferred payment.
