Explain and evaluate the following statements: a. The invention of money is one
ID: 2439406 • Letter: E
Question
Explain and evaluate the following statements:
a. The invention of money is one of the greatest achievements of humankind, for without it the enrichment that comes from broadening trade would have been impossible.
b. Money is whatever society says it is.
c. In the United States, the debts of government and commercial banks are used as money.
d. People often say they would like to have more money, but what they usually mean is that they would like to have more goods and services.
e. When the price of everything goes up, it is not because everything is worth more but because the currency is worth less.
f. Any central bank can create money, the trick is to create enough, but not too much, of it.
Explanation / Answer
a) The invention of money is one of the greatest achievements of humankind, for without it
the enrichment that comes from broadening trade would have been impossible.
Yes. Before the invention of money, the barter system prevailed. Double coincidence of wants was a vital component for exchange of goods under the barter system. The double coincidence of wants is difficult as a seller and buyer should concur in their need. Money serves as a medium of exchange, as a store of value, and as a unit of account.
b) Money is whatever society says it is.
Yes, money is whatever a society declares to be. Money has to perform the three functions of a medium of exchange, as a store of value, and as a unit of account. It is the duty of monetary authority to prevent hyper inflation by limiting the amount of money in the economy.
c) In the United States, the debts of government and commercial banks are used as money.
Yes, bank deposits are debts owed by commercial bank to its depositors. Depositors are creditors and bankers are debtors. Currency, which is legal tender, is the circulating debt of the government.
d) People often say they would like to have more money, but what they usually mean is that they would like to have more goods and services.
Yes, money is used to buy more goods and services. When people need money it means that they wish to buy goods and services now or in the future.
e) When the price of everything goes up, it is not because everything is worth more but because the currency is worth less.
When prices goes up there is inflation which means the purchasing power of currency has gone down.
f) Any central bank can create money, the trick is to create enough, but not too much, of it.
A central bank has to print enough money to keep inflation within reasonable limits. If excess money is printed than there would be hyper inflation.
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