sem 3 (ge MONEY AND BANKING)
UNIT 1
MONEY
Definition of money
The means of paying for something or buying something.
Kinds of money
1. Commodity money
Commodity money is as money whose value comes from a commodity of which it is made. Commodity money consist of objects having or use in themselves as well as their value in buying goods.
2. Standard money
A monetary unit which is designated by a government to serve as the basis of its currency system and into which other types of money in the country are convertible.
3. Token money
Money where the face value of notes or coins is unrelated to the value of the material of which they are composed.
4. Paper money
Paper money is a country’s official, paper currency that is circulated for the transactions involve in acquiring goods and services.
5. Bank money or credit money
A medium of exchange consisting chiefly of checks and drafts.
Functions of money
1. A medium of exchange
A medium of exchange is an intermediary instrument or system used to facilitate the sale, purchase, or trade of goods between parties.
2. A measure of value
Money as a measure of value helps in determining the value of goods and services in the economy.
3. A standard of deferred payment
Standard of deferred payment is a function of money. It is the function of being a widely accepted way to value a debt, thereby allowing goods and services to be acquired now and paid for in the future.
4. A store of value
A store of value is any commodity or assets that would normally retain purchasing power into the future and is the function of the assets that can be saved, retrieved and exchanged at a later time, and be predictable useful when retrieved.
MEASURES OF MONEY SUPPLY
Money and price
The quantity theory of money
Mv= pt
According to the quantity theory of money, if the amount of money in an economy doubles, all else equal, price levels will also double. This means that the consumer will pay twice as much for the same amount of goods and services.
Evalution of the quantity theory The income and expenditure approach
According to the quantity theory, it is the quantity of money and its velocity which determines the aggregate expenditure. According to the income theory, it is the, flow of expenditure which determines the quantity of money and its velocity.
the income and expenditure approach
The main difference between the expenditure approach and the income approach is their starting point. The expenditure approach begins with the money spent on goods and services. Conversely, the income approach starts with the income earned from the production of goods and services (wages, rents, interest, profits).
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