Question

Please read the following and submit an appropriate 150 commentary 1) Why aren't mobile payments counted as money? 2) Is a reduction in interest rates likely to affect spending on pizza? What kinds of spending are sensitive to interest rate fluctuations? 3) How does easier bank lending contribute to economic growth? Are there any risks for growth with easier bank lending?

Answer 1

1) The money supply is said when there is a generation of money in any end of the transaction. It happens usually on loans or deposits. Here it is a payment done of service received and there isn't a money generation. So it is not counted as money.

2) Yes, the reduction in interest will increase the purchasing power of the customer and this tends them to spend it over the products. so it will definitely affect the pizza purchasing as it is considered to the consumer good on high demand.

The decrease in interest rate have positive affect on the followings-

a) People tends to invest money in bonds as the practice of savings

b) Spend money on premier product over cheap product

c) Spend the money and avail loans with low interest in purchasing cars, houses, and luxurious things.

d) Spend money tourism

3) Lending money facilitates the money supply in the economy. This is the way by which banks make money and helps in economic growth. The banks provide loans to individuals and the entrepreneurs and by this, the production goes on and the GDP too. The return interest plus principles increase the money supply also. through this process, fair money supply is been facilitated. In order to increase the lending mode in the bank, the bank has to lowe its lending standards and procedures and this is a huge risk of the bank. The lending to businessmen without checking the creditworthiness in a systematic way will definitely it cause much more than expected.