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4. (a) (i) Define the terms: money and legal tender - Leaving Cert Economics - Question 4 - 2007
Question 4
4. (a) (i) Define the terms: money and legal tender. (ii) State the TWO items from the list below which are considered legal tender. CHEQUES €50 NOTE €1 CO... show full transcript
Worked Solution & Example Answer:4. (a) (i) Define the terms: money and legal tender - Leaving Cert Economics - Question 4 - 2007
Step 1
Define the terms: money and legal tender.
Answer
Money refers to anything that is accepted in payment for a debt, serving as a medium of exchange, a unit of account, and a store of value. Legal tender, on the other hand, is defined as any form of payment that must be accepted if offered in discharge of a debt, primarily determined by law.
Step 2
Step 3
Step 4
State and explain how an increase in interest rates could affect Individual households.
Answer
An increase in interest rates can lead to higher borrowing costs for individual households, as loans for mortgages and personal finance become more expensive. This may reduce disposable income as households allocate more of their budget to interest payments, leading to a decreased standard of living.
Step 5
State and explain how an increase in interest rates could affect Businesses.
Answer
For businesses, higher interest rates typically mean increased costs of borrowing. This can lead to reduced profitability, as funds for expansion or operating expenses become more costly. Additionally, businesses may need to restrict hiring or cut back on investments, further negatively affecting growth.
Step 6
State and explain how an increase in interest rates could affect The Economy.
Answer
An increase in interest rates can reduce overall economic growth. Higher borrowing costs can discourage consumer spending and business investment, leading to decreased demand for goods and services. This may result in slower economic expansion or even a contraction, affecting employment levels and overall economic stability.
Step 7
Explain the underlined term: Savings.
Answer
Savings refers to the portion of income that is not spent on immediate consumption, typically set aside for future use. It plays a crucial role in personal finance and can be accumulated in various forms such as bank accounts, investments, or accounts like SSIAs.
Step 8
State and explain TWO economic advantages of this increased flow of money in the Irish economy.
Answer
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Increased standard of living: More savings being utilized can lead to greater demand for goods and services, positively affecting economic growth and improving living standards.
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Tax revenues for government: Increased economic transactions can bolster tax revenues, allowing for more government spending on public services and infrastructure.
Step 9
State and explain TWO economic disadvantages of this increased flow of money in the Irish economy.
Answer
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Inflation: Increased spending from savings can lead to higher demand and subsequently drive up prices, causing inflationary pressure in the economy.
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Imports: Higher consumption may lead to increased imports, which could adversely affect the trade balance and cause potential economic vulnerabilities.