3.1 A - Money

Question 1

Households

Answer 1

Provider and consumer of factors of productions and the end products respectively

Question 2

What problems did money overcome

Answer 2

Fixed the rate of exchange

Difficult to save/store in the barter system

Difficult to find people willing to exchange their product for yours.

Question 3

Functions of money

Answer 3

Medium of exchange
Unit of account
Is a store of value
Means of deferred payment

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Question 4

Explain function of money - Medium of exchange

Answer 4

Overcomes the problem of barter (Difficult to find people willing to exchange their product for yours. ) system since money has value attached to it.

Question 5

Explain function of money - unit of account

Answer 5

Money becomes a universal unit used to measure and compare the value of different goods and services. It is used to express their prices.

Overcomes the fixed rate of exchange problem

Question 6

Explain function of money - Is a store of value

Answer 6

Overcomes problem of “Difficult to save/store in the barter system”

Money can be saved to use at a later date and is usually a good store of value

Question 7

Explain function of money - Means of deferred payment

Answer 7

Helps give and take credit. Consumer can pay for the goods over a period of time and do not have to pay for them immediately. Payments can be spread over months and years.

Using credit to exchange in barter system may not always be fair.

Question 8

List characteristics that make money “good money”

Answer 8

Acceptability 
Durability 
Portability 
Divisibility 
SCARCITY

AP SDD

Question 9

Characteristic of money Acceptability

Answer 9

Anything can be money as long as its accepted. In our case we use paper and coins.

Question 10

Characteristic of money Durability

Answer 10

Must be physically durable, so that they can act as a store of value.

Question 11

Characteristic of money Portability

Answer 11

Units should be easy to carry around so that they can be taken around in order to purchase different goods or services.

Question 12

Character of money Divisibility

Answer 12

Money has to be able to be divided into smaller units, so that all goods and services can be purchased.

Eg: If you have a car, and something is valued at half the car’s value, then there’s no way to divide the car and get the good/service.

Question 13

Character of money Scarcity

Answer 13

Must be in limited supply. If it was very abundant then it would loose value.

Question 14

What is near money

Answer 14

Can be converted to money very easily. Liquid assets

Question 15

What are Financial Assets

Answer 15

Anything that has value and be converted into money

Question 16

What are Physical assets

Answer 16

Has a physical form and can be converted into money

Question 17

What are Liquid assets

Answer 17

assets that can be converted to cash over a period of 1 year

Question 18

What are Bank deposits

Answer 18

Money held at banks and other financial institutions

Question 19

What is the money market

Answer 19

A market made up of people and organizations that want money, and all the people and organizations willing and able to supply the money.