Functions of money

Question 1

The 4 functions

Answer 1

• A medium of exchange
• A measure of value
• A store of value
• A method of settling debts

Question 2

Subsidises

Answer 2

Direct payments that the government provides businesses to offset some of their operating costs in order to reduce prices and increase output

Question 3

Subsidy graph

Answer 3

• S shifts to the right
• P shifts down
• Q shifts to the right

Question 4

How to find consumer subsidy in a Subsidy graph

Answer 4

Draw line up from increased output and include the left of line and cs is from original price to the decreased price

Question 5

How to find producer subsidy in a Subsidy graph

Answer 5

Draw line up from increased output and include the left of line and ps is from original price up to the max point drawn from increased output line

Question 6

Reasons for subsidies

Answer 6

• Keep prices down
• Encourages merit goods
• Reduce the cost of capital investment

Question 7

Reasons against subsidies

Answer 7

• Opportunity cost
• Distort the free market
• Expensive
• Risk of fraud
• Artificially protects inefficient firms

Question 8

Max pricing graph

Answer 8

Normal supply and demand graph with a line drawn below where supply and demand cross and to where the line first hits the graph to the last time it hits the graph is the shortage

Question 9

Minimum pricing graph

Answer 9

Normal supply and demand graph with a line drawn above where supply and demand cross and to where the line first hits the graph to the last time it hits the graph is the surplus