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Medium of exchange is one of the functions of money - Leaving Cert Economics - Question 4 - 2008
Question 4
Medium of exchange is one of the functions of money. (i) Explain the underlined term. (ii) State two other functions of money. (iii) State other than notes and coin... show full transcript
Worked Solution & Example Answer:Medium of exchange is one of the functions of money - Leaving Cert Economics - Question 4 - 2008
Step 1
Explain the underlined term.
Answer
The term 'Medium of exchange' refers to the function of money that facilitates transactions. Money acts as a universally accepted medium, allowing individuals to trade goods and services without the complications of barter. It simplifies the exchange process, enabling smooth transactions.
Step 2
State two other functions of money.
Answer
- Store of Wealth: Money can be saved and stored for future use, preserving its value over time.
- Measure of Value (Unit of Account): Money provides a standard measure that allows prices to be compared and quantifies the value of goods and services.
Step 3
Step 4
Step 5
State and explain two reasons why competition is increasing.
Answer
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Competition from Other Financial Institutions: Building societies and non-bank financial services are expanding, offering competitive rates and more comprehensive financial products.
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Growth in Internet Banking: The rise of online banking has empowered consumers to compare services effortlessly, fostering a more competitive banking environment.
Step 6
State and explain how this increased competition may affect each of the following: Customers of the banks.
Answer
Increased competition leads to improved services for customers. Banks strive to offer better interest rates, lower fees, and more competitive loan offerings. Customers enjoy more choices and better customer service as banks attempt to attract and retain clientele.
Step 7
State and explain how this increased competition may affect each of the following: Shareholders in the banks.
Answer
For shareholders, increased competition can mean both advantages and challenges. On one hand, banks may become more profitable, leading to increased dividends. On the other hand, heightened competition can lead to reduced profit margins and potential risks, as banks may have to lower fees and improve services, affecting overall profitability.
Step 8
Discuss the possible effects which this development may have on each of the following: Level of demand for goods and services in Ireland.
Answer
If the European Central Bank reduces interest rates, it is likely to stimulate demand across the economy. Lower interest rates mean cheaper borrowing, leading to increased consumer spending and investment, thereby boosting the overall demand for goods and services.
Step 9
Discuss the possible effects which this development may have on each of the following: Mortgage holders.
Answer
Reduced interest rates can lead to cheaper mortgages, which increases disposable income for mortgage holders. This increase in disposable income may enable homeowners to consider additional borrowing or allow them to pay down their mortgage more quickly.
Step 10
Discuss the possible effects which this development may have on each of the following: Businesses.
Answer
Lower interest rates decrease costs of borrowing for businesses, enhancing profitability. Firms may be encouraged to invest in expansion and workforce, leading to increased economic activity. Additionally, attractive borrowing terms can draw foreign investment into local businesses.
Step 11
Discuss the possible effects which this development may have on each of the following: Savers.
Answer
For savers, lower interest rates can discourage saving due to lower returns on deposits. This may lead to less savings overall, as individuals look for higher returns elsewhere or spend more rather than save, impacting the economy's overall savings rate.