Question

How does money make an economy more productive?

Answer 1

The term Money is characterized by economists as anything that can be readily used as a means of payment for goods and services and debt settlement in market transactions. Fiat money is any money which is issued and made legal tender by a country. It usually has no inherent value outside the Government's obligation to pay the holder this money's worth. Fiat money allowed banks to increase the amount of money in the economy beyond the Government's total supply of bills and coins

Through regulating the monetary base, the central bank manages the money supply in the economy and then regulates the banks' ability to produce capital by: 1. Limiting the sum of the commercial banks' deposits can lend.
2. Use monetary policy to manipulate interest rates to change the demand for credit among peoples.

Money loses value over time in its most stable form (cash and demand deposits) as the interest it charges is often smaller than inflation.
Keep restricted this type of money to only what's required for transactions. Other types of money (other deposits, such as time deposits) can yield interest rates equal to or greater than the rate of inflation. That type of money is like a good worker. Shop around and keep as much of your money in this form. Use money for other peoples whenever possible. The intelligent and judicious use of credit is key to the development of wealth. This is like the greatest employee you ever have.

The amount of consumer expenditure, government spending, production, and net exports is aggregate demand (AD). The AD curve assumes there is set money supply. The decrease in the money supply is mirrored by an equal decrease in nominal output, otherwise known as GDP. The fall in the money supply will lead to a reduction in consumer spending. This lowering will move the AD curve to the left. An equivalent increase in nominal output, or Gross Domestic Product (GDP), is reflected in the rise in money supply. The rise in money supply would result in increased consumer expenditure. This rise would have the AD curve moved to the right.