Question

What is money?

How do we classify it?

Who creates money?

            Who creates the bulk of the money supply? ***How? ***Explain the process.

Money Multiplier

Answer 1

Money is the thing that the people will use to buy the goods and services. The money is the same thing that people will receive when they are selling the goods or services. The money will expressed as various units in different countries. In US money expressed in dollars, in British money in pounds..etc. Money act as medium of exchange in our society. Money having major role in the economy of a country.

The four major types of money includes:

1.Commodity Money

​​​​​​​​​​​​​​​​​​​​​When we are using commodities for exchange purpose, this commodities becomes act as money. The commodity Money is the simple money that was used in the barter system.

2.Fiat Money

​​​​​​​​​​​​​​Fiat Money will not having an intrinsic value. We can't convert the fiat money into an valuable resource. For all the transaction purpose we are using the fiat money. The value assinged to this money is by government. For all the modern money system, fiat money act as basis.

3. Fiduciary Money

The fiduciary money is a type of money that we are mainly using in the banking transactions. The fiduciary money will having the form of gold,silver or paper money. The cheque and bank notes are also belongs to fiduciary money.

4. Commercial Bank Money

The term commercial bank money reffered as the portion of a currency which is made of debt generated by commercial banks.

No one is sure about who invented the money. The commodities are used as money in earlier stages, defined as the barter system. Later it felt difficult in exchanging commodities as money. Because of it's difficulties in transportation,etc. This problems over commodity exchange will lead the people to create coins using precious metals and it used as money. Later paper money invented. Now we are using the fiat money.

The total money that circulating in an economy is called the money supply. Multiplier or multiplier effect in an economy is the expansion of the money supply. Here the money itself using to increase the money in the economy.

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