Question

Q1: Define money and explain the important functions of money?

Q2: Some economists suspect that one of the reasons that economies in developing countries grow so slowly is that they do not have well-developed financial markets. Does this argument make sense?

Q3. When interest rates fall, how might you change your economic behavior?

Q4: Why are financial markets important to the health of the economy?

Q5: When the American dollar worth more in relation to currencies of other countries, would an American be more likely to buy American-made or foreign-made jeans?

Q6. Why do Government Treasury bills have lower interest rate than large-denomination negotiable bank CDs?

Q7. Interest rates are among the most important monetary variable watched in the economy. Briefly explain why interest rate is important for the economy.

Q8. Briefly explain the meaning of the following terms:

a) Fiat Money

b) Liquidity

c) FinTech

d) Treasury Bills

e) Commercial Paper

f) Bitcoins

g) Yield Curve

h) Money Market

i) M1 and M2

j) Junk Bonds

Answer 1

1 - Money can be defined as any item having legal tender , or fiduciary value which can be accepted as the medium of exchange in the transactions and can carry out various other functions and remove all the drawbacks of barter system. Its functions are -

1- It acts as the medium of exchange and helps to carry out transactions without double coincidence of wants

2 - It acts as the store of value

3 - It is used as the unit of account of any items in order to buy or sell.

4 - It acts as the measure of value which is used as the tools for the valuation of items.