a. What is money? b. Explain the following concepts: i. value of money: ii. demand for money, (c) ldentify any four determinants of transaction demand for m...

Answer Details

a. Money is a medium of exchange, a unit of account, and a store of value. It serves as a means to purchase goods and services and to pay debts, as a standard of value for setting prices and as a way to save and transfer wealth.

b. i. The value of money refers to the worth or purchasing power of a currency. It is determined by a number of factors, including inflation, interest rates, and political stability. When the supply of money increases, the value of money decreases, and prices for goods and services rise. When the supply of money decreases, the value of money increases, and prices for goods and services fall.

ii. Demand for money refers to the amount of money that individuals and businesses want to hold for transactions, savings, and other uses. The demand for money is influenced by a variety of factors, including the level of income, interest rates, and the price level. When people earn more, they tend to want to hold more money, and when interest rates are high, they may choose to hold their money in interest-bearing accounts instead of spending it.

c. The four determinants of transaction demand for money are:

1. Level of income: As people's income increases, they tend to want to hold more money to be able to purchase more goods and services.
2. Prices: When prices of goods and services rise, people tend to want to hold more money to be able to purchase the same amount of goods and services as before.
3. Interest rates: When interest rates are high, people may choose to hold their money in interest-bearing accounts instead of spending it, which decreases the transaction demand for money.
4. Number of transactions: The more transactions people make, the more money they will want to hold for these transactions.