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Four functions of money are: - Medium of exchange; - Measure of value; - Store of wealth; - Standard for deferred payment - Leaving Cert Economics - Question 7 - 2009
Question 7
Four functions of money are: - Medium of exchange; - Measure of value; - Store of wealth; - Standard for deferred payment. (a) Explain any two of the above functio... show full transcript
Worked Solution & Example Answer:Four functions of money are: - Medium of exchange; - Measure of value; - Store of wealth; - Standard for deferred payment - Leaving Cert Economics - Question 7 - 2009
Step 1
Explain any two of the above functions.
Answer
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Medium of Exchange: Money acts as a medium that facilitates the buying and selling of goods and services by eliminating the inefficiencies of barter. It provides a universally accepted form that buyers and sellers can rely on in transactions.
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Measure of Value: Money serves as a measuring tool that allows individuals and businesses to assign a numerical value to commodities and services. This standardization makes it easier for people to compare the value of different items and aids in economic decision-making.
Step 2
Step 3
State and explain how a decrease in interest rates may affect each of the following: Households.
Answer
A decrease in interest rates generally leads to lower borrowing costs for households. This enables them to take loans for major purchases, such as homes and cars, enhancing their standard of living. Additionally, reduced interest rates may encourage households to spend more rather than save, thereby stimulating the economy.
Step 4
State and explain how a decrease in interest rates may affect each of the following: Businesses.
Answer
For businesses, lower interest rates can reduce the cost of borrowing, which may encourage investment in expansion and capital improvements. This can lead to increased production, job creation, and ultimately, an enhanced economic environment.
Step 5
State and explain how a decrease in interest rates may affect each of the following: The Irish Economy.
Answer
A decrease in interest rates can stimulate economic growth by encouraging both consumer spending and business investments. It may also lead to an increase in national debt levels and influence wage negotiations as workers seek to maintain their purchasing power.
Step 6
Step 7
State and explain two factors, other than the rate of interest, which may influence a person's decision to save.
Answer
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Level of Income: Generally, higher income levels provide individuals with more disposable income, thus encouraging savings. Conversely, individuals with lower incomes may struggle to save.
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Future Expectations: If individuals anticipate economic downturns or job losses, they may choose to save more as a precautionary measure, demonstrating the impact of confidence in economic stability on saving behavior.
Step 8
State and explain two economic effects which an increase in the level of savings may have on the Irish economy.
Answer
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Reduced Spending within the Economy: Increased savings can lead to less consumer spending, which may decrease demand for goods and services, potentially slowing economic growth.
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More Funds Available for Investment: On the positive side, higher savings levels can lead to more funds in financial institutions, making more capital available for businesses to borrow and invest, thereby fostering economic development.