Functions of Money

Money   Money must fulfil four functions if it is to be considered money 1 – Act as a medium of exchange. This means it can be used to buy and sell goods and services. This is obviously vital, if I am selling a good or service I will only accept the ‘money’ someone offers… Continue reading Functions of Money

Characteristics of Money

The Characteristics of Money: Beyond the FUNCTIONS money should also have certain CHARACTERISTICS. These characteristics of money help money fulfil its functions. Cash notes and coins and Debit cards are excellent form of money as they satisfy all these characteristics. By contrast goods like chicken, bread or metals that may be useful for bartering rarely… Continue reading Characteristics of Money

Credit Creation

Credit Creation – The simple case. Imagine there is only one bank in an economy. What happens to the amount of money in circulation if that bank receives a new deposit? Banks need to satisfy two criteria: 1- Profitability 2- Liquidity How do banks make profit? Well, they lend money out. They will then charge… Continue reading Credit Creation