Question

Explain and evaluate the following statements:

Answer 1

Answer:

A) This statement refers to the fact that money is great as a medium of exchange, because it is accepted by people, and it's easy to tansport.

B) Money has three functions: as a store of value, as a unit of account, and as means of exchange. When a society thinks that something (be it coins, bills, cigarrettes) has those three functions, it becomes money.

C) The government issues treasure bonds that are bought by the central bank, the money the central bank pays from these bonds enters the market. Commercial banks also borrow from the central bank. These funds they borrow are used to make loans, and put more money in the market.

D) Money has value as long as it is exchanged for goods and services. Even if a person hoards money for a long period of time, that person does so because he or she expects the money to gain value, or because he or she wants to save for the future.

E) This statement is describing what inflation is. Inflation is the rate of price increase in time. When there is more money than goods and services in an economy, money itself loses value and all the prices expressed in monetary value increase.

F) The statement is true. If a central bank creates too much money, it will lead to inflation, or even hyperinflation.