Features/functions of money + Money supply

Question 1

it must be homogenous

Answer 1

All units of money must be identical or uniform

Question 2

it must be divisible

Answer 2

money must be able to be divided into smaller units, Not that the coin (or note) itself has to be split into smaller pieces. Rather, larger denominations of notes and coins must be able to be converted into smaller units. This will enable the buyer to pay smaller amounts for cheaper items. Also, the seller will be able to give change.

Question 3

it must be portable

Answer 3

Money must be easy to carry arounds. This will enable transactions to take place in all areas without inconvenience

Question 4

it must be legal tender

Answer 4

This means that a creditor is legally obliged to accept the money in settlement of debt. Notes and coins are legal tender. Small denominations of money (coins) are not legal tender for large debts. Cheques are not legal tender. No creditor is bound to accept cheques as a means of payment.

Question 5

It must be acceptable

Answer 5

Everyone must be willing to accept money as a means of settling debts. It is from our willingness to accept money as a means of payment that money obtains its value

Question 6

it must be durable

Answer 6

money must be long-lasting and not easy to wear away. If it is not durable- for instance, if it crumbled or melted away- it would be useless as money. In the UK in the 1600s, silver coins were illegally ‘clipped’ in order to make more coins. This was the reason for introducing the milled edge to reduce such debasement of the currency

Question 7

it must relatively scarce

Answer 7

money must be relatively scarce for it to have value.