Macroeconomics
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EnglishVoice Age
Young Adult (18-35)Accents
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at a glance. Money banking at interest The issue is money is a key feature of economic activity. What are the key features of money? What is the purpose of the banking system, and how is it that interest rates can be used to influence GDP and inflation? The understanding the money enables buyers and sellers to trade and is referred to as a medium of exchange. Banks are important because they channel liquidity from savers who have too much cash to borrowers who have a shortage of cash. The interest rate is the equilibrium price of money. By varying the interest rate, a central bank orders the cost of borrowing. Since borrowing can facilitate household consumption and firm level investment, changing interest rates can change the level of demand in an economy. The usefulness. Understanding how the money and banking markets work is extremely important. First, it enables an understanding of how interest rate changes are transmitted into the wider economy. This has important implications for the level of consumption and investment demand. Second, banking is such an important component of modern economies that it is essential to understand the role of banking within an economy and appreciate its ability to support economic growth and also damage economic stability when there is a shortage of cash or banking crisis to afford one business problem. Understanding how the monetary environment influences the commercial environment. Such is the importance of monetary policy that interest rate changes in the US, the eurozone and the UK are dealt with as major news events. But why is interest rate policy such a significant part of economic policy? The answer to this question is complex and involved in understanding of money banking and money market equilibrium. Money is a key characteristic of most economic transactions. Goods and services are nearly always pressed in monetary terms. A pizza is £5 or £7. You never see a piece of price of bottles of coca cola or any other good or service money is a common price and just as important, money is commonly accepted as payment for goods and services, and it's equally accepted as payment for work. While a key feature of economic activity, money is not economic activity itself. The conversion of economic inputs, land, labour, capital and enterprise into goods and services is economic activity, but money is the means of facilitating economic transactions such as money is the lubricant off the economic system to understand the level of economic activity on the level of consumption and investment. Demand is in part to understand how much monetary Greece is in the system. Understanding how much money exists within the economic system is not straightforward. Notes and coins are obvious example of money, but so, too are the electronic digits of money in your bank accounts. While the Bank of England is responsible for printing additional amounts of money, the retail banks are capable of multiplying electronic credits of money. If company pays in £1 million then the bank may lend out £0.9 million in loans. The money supply has just increased by 0.9 million. The company thinks it has £1 million of money on the borrower's think. They also have 0.9 million of money. Expansion of the money supply by banks represents the provision of liquidity. Channelling money from savers who have excess cash for their current transaction needs to borrowers who are short of cash, given their current transaction needs is a very beneficial economic activity, but the rate at which this occurs can be problematic. Too much credit expansion and consumption and investment demand can grow too quickly, leading to inflation. Too little credit expansion, such as during the credit crisis and economic growth, will slow in setting rates for the economy. Central Bank's attempt to set the rate of credit expansion within an economy based rates determined the money market rates for money. If the central bank raises the base rate, then the price of monetary fund's increases with a fixed the mind for money. The central bank must reduce the money supply in order to raise the interest rate by mopping up excess liquidity through higher rates of interest. The central bank limits the ability off retail banks to expand credit for consumption and investment. Likewise, if the bank reduces interest rates, then money supply needs to be increased, which enables the retail banks to expand credit to borrowers. Understanding the intricacies ofthe thie money and banking markets and the role of the central bank provides a deeper insight into how changes in the base rate can impact on the level of consumption, investment and overall economic activity. Further more understanding the economic importance of banking in providing credit and liquidity also opens up and understanding off the financial risks undertaken by banks. When banks collapse or face the loss of confidence, there can't be a loss of confidence and withdrawal. Off liquidity from the economy, banking regulation and an understanding of the importance of banking to the economy are also key issues to understand. We will now develop your understanding of these issues by considering the role of money, the economic importance of banking, the regulation of banking, the credit creation process, the demand for money, money market equilibrium and monetary policies. 12.2 What is money? Money facilitates exchange considering economy with no money generally referred to as a barter economy where goods are swapped for other goods. In a barter economy, there is no money and individuals trade by exchanging different goods and services. A double coincidence of once occurs when two people trade goods and services without money. The first individual demands the goods offered by the second individual ad vice versa. Unit of account is the unit in which prices are quoted. We are specialists, economic textbook authors. That is, we produce. You might flip burgers or drive a taxi. This book could be worth 30 burgers or one taxi ride to the airport. We do not like burgers, but we do fly, so we need a taxi. But will the taxi driver want our economics textbook in return for a trip to the airport? And if the Burger Flipper wants our textbook, do we really want 30 burgers and return? You could see the problem without money. A so called double coincidence of once is required in order to exchange goods. As textbook authors, we need to find people who want our book at our offering goods we want in exchange money solves this problem. We can pay the taxi driver £30 cash that they can then use that money to buy goods which they desire, such as food, petrol or coffee. They do not have to accept the textbook. A central role of money is that it is recognised and accepted as a medium of exchange. Workers will accept money in exchange for their labour shop owners will accept money in exchange for their goods and services. As a medium of exchange, money is extremely efficient because it cuts down on the need for a double coincidence of once money also has other functions. It is generally seen to be a unit of account. All prices are expressed in monetary terms. BMW's £20,000 not 100 cows. In the US the unit of account is dollars, and in the eurozone it is yours. Goods and services are expressed in a common unit which is monetary based. This again enable sufficient transactions by facilitating comparisons and transparency in pricing. A common unit of account or price enables buyers and sellers to understand the value ofthe the current market price had whether or not a transaction is profitable or loss. Making a store of value is something that can be used to make future purchases. For example, money Fiat money is notes and coins guaranteed by the government rather than buy gold deposits. Virtual currencies are defined by the European Central Bank as unregulated digital currencies created by software developers and used and accepted amongst the members of our virtual community. Money should also be a store of value. For example, milk is not a good store of value because it deteriorates quickly and goes bad money as metal coins and paper banknotes does not perish. Money earned today can be saved and used next week or next month to facilitate a future transaction. However, money is not a perfect store of value money as cash owns zero interest and its value is eroded by inflation. Other assets, such as houses, golden interest bearing accounts, can all serve stores of value. However, money is the predominant medium of exchange in most economies today, money takes the form of Fiat money. Before Fiat money, governments backed money with gold. The holder of a note could approach the central bank and the mark that there not be exchanged for an equivalent value of gold. Money is no longer backed by gold, but it is instead guaranteed by the government or central bank. Fiat money has a number of beneficial aspects associated with it. It is legally recognised as a medium of exchange that is culturally accepted. As such, people are willing to exchange goods for money. Paper notes and coins are cheap. To make. See the mass production techniques employed by the Royal Mint in Box have put one. A £10 note does not require £10 of resource is in order to make it. In contrast, a £10 gold nugget would represent £10 of resource government backed money. Economists on scarce resource is. But here's the problem. Because a £10 note can be produced for less than £10 forgers can make a profit. Therefore, forgery has to be outlawed on the law. Needs to be enforced. Virtual currencies Alternatives to Fiat money Our virtual currencies such as Bitcoin. But currencies are defined by the European Central Bank of unregulated digital currencies created by software developers and use and accepted amongst the members ofthe virtual community. Virtual currencies have some of the features of money. For example, Bitcoin is a unit of account and a store of value goods and services can be priced in Bitcoins on individuals Trade Bitcoins In exchange for these goods and services, Bitcoin also has some store of value. For example, Bitcoin can be held in exchanged at a later date for another currency, including Fiat currencies such as the U. S. Dollar, even the Europe. Today, however, to date, the store of value for virtual crisis has been very volatile. For example, in early January 2015, 1 Bitcoin could be exchanged for $320 by mid January 2015, 1 Bitcoin was worth $160 and by the end of March 2015, 1 Bitcoin was worth $250 and by November 2018 it was worth $20,000. Books 12.1, making money and rolling in it the royal mid, both some of the most advanced coining machinery in the world. In the foundry, strips of metal are drawn from large electric furnaces, reduced her to required thickness on a tandem rolling mill and transferred to large blanking presses where coin blanks can be punched out at a rate of 10,000 per minute. The blanks are soft and cleaned, Indian kneeling and pickling plant before the final process. In the Corning Press Room here, the blanks are fed into the Corning Press, where the obverse and reverse designs, as well as the milling on the edge, are stabbed simultaneously onto the blank. The Royal Mint's latest presses can't eat strike more than 600 coins per minute, making it impossible for the human eye to separate the individual pieces as they passed through the press. Fluctuations in value are not good. When looking for a store of value. Some of the volatility lies the limited number of users off the currency. With a relatively small number of users, demand and supply of the currency can order markedly from day to day. Limited supply and high demand on one day will lead to higher price for the currency, while the next day high supply and load amount really too dramatic fall in value. These problems do not exist in an economy the size of Europe, the US or the UK, with a total population on users, can be as high as 30 million per day. The final problem is one of vulnerability to forgery. Virtual currencies are protected by advising American past was Noah's cryptographic. The passcode is shared amongst legitimate creators of new currency Hacking. The code can enable someone to create currency for themselves. Like forgery. Hacking could be made difficult, prohibitively expensive, requiring advanced computer equipment and vast amounts of processing time. However, the financial returns for a hacker camping in the hundreds of millions. Once hacked, additional currency comes onto the market and this increased supply reduces the price. Therefore, the criminal threat to the Chrissie adds to the volatility off the virtual