Question

PART B - 1 OF 2 QUESTIONS/PROBLEMS (40 POINTS) 1) In what ways is money a better system for the day to day functioning of the economy than a barter system and what are some of the major problems that can be caused by the use of money il it is not properly managed? Please be sure to include the following parts in your discussion: A) Compare and contrast the money vs. barter systems and include the major functions that money serves as a part of the overall economy (10 points). B) Provide a formal definition of money, which needs to include the three major money components, the way in which these components are organized and at least one example of ea of the money components (10 points). C) Describe how money is created and retired, which institutions are involved, and what is the role of these institutions in this process (10 points). D) Discuss the major economic problems that can arise from inflation and hyperinflation an what extent money creation can be the cause of these problems (10 points).

Answer 1

Ansacr a) * The batter system Sefers to a system in which People exchanged goods they possed in exchange of goods which others had. * This then translated into a economic transaction. * This was a very old tradition and had numerous problems since it had no room for inventody stosage and future transcation's * Also, in a batted system, exchange can happen only, of these exists a double coincidence of wants between two Parties. D * In standard economic items money is a mediom of exchange in the form of coins and banknotes and digital coddney. The functions of money are as follows a) medium of exchange . * The most important fonction of money is that is the standaad medium of exchange * Past barted system, People easily engage in teade without having to exchange goods for each othed. * If a wheat owned wants a not have to exchange it and can the cuddency which is accepted space respectively. purchase shoes he does. rathed pay in in the market

stock of_value Money can be stored in banks and be used for payments accordingly. It is dcadily accepted curdy cohere and has . Convenient denominations respectively. * It can be used up for any future transcations and obligations, which may sase oued a period of time. A petson may spend it as per contingency respectively unit of account money also fonctions as avuit of account, in having a common measure of the value of goods and scdvices being exchanged. knowing the value of price oko good, in beams of money, enables both the provides & purchased of the product to make decisions about how much of the good to supply and how much of the good to potchase... I despectruely * money is cocated by banking institutions, Banks atc institutions which accept deposits and gåants Loans. at They cocate money with the interst which is earned of depayment of loans in an economy and it gets destroyed when this gets paid back to the bank *. They are heavily acgulated by the Federal Bank eas . Central bank as may be called in various countries

* Inflation causes prices of products to goup in the market space because of which people and it toughet to Radote Prelude goodsi * Felthat is results in people buying lessed quantities of products leading to lessed production. 1 * This causes a cycle in which people go sobless because of lesser production and can therefore by lesset because they do not have moncy which they would easilex earn because of Jobs. * The Great Depression and the subsequent impact on Germany is a example of the case respectively.