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In: Economics

ONLY ANSWER QUESTIONS 6-12 What is “money”, exactly?   2. Please name three items that may be...

ONLY ANSWER QUESTIONS 6-12

  1. What is “money”, exactly?   2. Please name three items that may be used as money, at least in theory, and name two items that could NEVER be used as money. What is the difference between these two groups?   3. What properties and characteristics should any type of money possess in order to be used as money?   4. What three functions should all types of money be able to perform?   5. What is a “barter” transaction, exactly? Please give an example of a barter transaction that was not discussed previously. 6. a) Exactly what is required for a barter transaction to occur? b)   Why do many economists argue that a barter transaction is not as “efficient” as a money-based transaction?   7. Please describe the concept of “counterfeit” and give an example of a situation involving this concept. 8. What is “hyperinflation”, exactly? Why must every country’s government worry about it? Give an example of hyperinflation: why is it so harmful to a nation’s economy and its people?   9. What is a bank, exactly? What does a bank do, exactly? 10. “A bank is just like any other corporation doing business in America—like Ford, or Target”… WHY IS THIS STATEMENT UNTURE??? WHAT IS SO SPECIAL ABOUT BANKS????? 1 What is the definition of the term “the REAL rate of interest” or “the REAL interest rate”? 12. What are three of the terrible harms caused by ten percent annual (yearly) inflation rates? Which groups in our economy are hardest hit by 10% inflation? Why?

Solutions

Expert Solution

6)

a. In order for a barter transaction to occur, two-fold system of needs should be satisfied.( Double co-incidence of wants)

For example, A wants to Wheat and has rice .B wants rice and has wheat. Then a successful barter exchange can take place between the two, A will get wheat and B will get.

If A wants Barley and not wheat, or B wants Maize and not rice the Exchange won't take place.

b) As mentioned in the above example, problem with water is that it requires double coincidence of wants .Buyer may not have appropriate items of value to the seller. In many, cases barter is inefficient because several trades or exchanges may be necessary to receive the desired goods. money solves the problem of double coincidence of wants because people will accept money for the items they sell.

Moreover butter is extremely expensive over long distances . Barter is is also time-consuming because of difficulties in determining the value of the product that is being offered for barter.

7) the term counter fiet is is used to refer to fake good. It means to imitate something for illegal purposes. lts a major problem for an economy.

Eg) counterfeit money- counterfeit is currency produced without legal sanction of the state or government.

Counterfeiting any currency note or bank note is an offence. If proved guilty, the offender will be punished by the law.

8)ln Economics, the term hyper inflation is used to desc situations where prices of goods and services rise uncontrollably over a defined time. lts a very high and typically accelerating inflation

* Eg; The inflation that occurred during the wein republic in Germany in the 1920's  

The nations are worried about hyper inflation because of its negative impact include the devaluation of currency , saving and pensions lossing worth, menu costs , shoe leather costs and more severe problems like food shortage and poverty.

9) ln simpler terms bank can be defined as a financial institution that accepts deposits and lends money.

Apart from the primary functions of accepting deposits and granting loans bank also performs secondary functions like underlying safe custody of valuables, providing investment advise, paying insurance etc

10) Bank is not like any corporations.. Banks are the most important parts of a financial system. Their importance is not confined to the primary and secondary functions mentioned above.

*They play a significant role in the mobilisation and transfer of funds to different sectors of the economy

* They facilitate the transfer of savings into investment

* Without banks , credit create won't happen.

* Functioning of money market will come to a hault if there are no banks.

11) Real interest rate refers to the Interest rate adjusted for changes in prices so that it more accurately describes the cost of borrowing.

In short, real interest rate is nominal interest rate less the expected rate of inflation.

12) Following are the major harms caused by 10 percent increase in prices.

* Decline in the value of the domestic currency along with a reduction in international competitiveness

* Fall in the value of savings and pensions

* Lower economic geography and less stability for the economy .

The groups worst hit will be savers , pensioners, workers on fixed incomes and borrowers on variable rates . They suffer because the value of money declines. For example , pensioners wont be able to purchase same level of goods and services before Inflation . Reason is the rise in prices in relation to income being constant.


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