Question

ECONOMICS

(a) Use a graphical approach to explain the effect of the following changes.

i. A new Covid 19 face mask, made in America, is successful in sales to canada.

   ii. canada reduces its interest rate compared to the U.S., causing investors to sell canada’s bonds and buy U.S. bonds.

iii. Canadians, unhappy with monetary unification, transfer their bank balances to the U.S.

iv. Briefly explain the five functions of money.

Answer 1

MONEY HAS BOTH STATIC AND DYNEMIC FUNCTIONS. THEASE FUNCTIONS OF MONEY ARE AS FOLLOWS:

1. A medium of Exchange – In an exchange economy, money plays an intermediary role. It makes the exchange system smooth and convenient.
2. A measure of Value – The value of a product or service is determined on the basis of the money needed for its possession. This helps in making the exchange a mutually profitable activity.
3. The Standard of Deferred Payments – Money plays an important role in lending and borrowing. Money is taken as a loan and repaid after a time-gap.
4. Store of Value – You can store the purchasing power of money and keep a part of it for future use – monetary savings. You can use your current income for current consumption as well as future consumption through savings.
5. Further, it helps in converting savings into investments.
6. Money can activate idle resources and put them into productive channels.