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What is Money? Video Lecture - Class 3
FAQs on What is Money? Video Lecture - Class 3
| 1. What is money? |  |
Ans. Money is a medium of exchange that is widely accepted in transactions for goods and services. It can take various forms, such as coins, banknotes, or even digital currencies like cryptocurrencies. Money serves as a unit of account, a store of value, and a standard of deferred payment.
| 2. How is money created? | |
Ans. Money is created through various mechanisms. One common way is through central banks, which can issue new currency or increase the money supply through actions like open market operations or adjusting interest rates. Commercial banks also contribute to money creation through the process of lending, as when they issue loans, they create new deposits that effectively increase the money supply.
| 3. What are the different types of money? | |
Ans. There are several types of money, including:
- Commodity money: Money that has intrinsic value, such as gold or silver.
- Fiat money: Money that is declared by a government to be legal tender and is not backed by a physical commodity.
- Representative money: Money that is backed by a physical asset, such as a gold certificate or a banknote redeemable for a specific amount of gold.
- Digital money: Money that exists purely in electronic form, such as digital currencies or online payment systems.
| 4. How does money facilitate economic transactions? | |
Ans. Money facilitates economic transactions by providing a widely accepted medium of exchange. Instead of relying on a barter system, where goods and services are directly traded, money allows for more efficient and convenient transactions. It helps to overcome the limitations of the coincidence of wants and enables individuals to specialize in their respective skills or products, leading to increased productivity and economic growth.
| 5. Can money lose its value over time? | |
Ans. Yes, money can lose its value over time due to inflation. Inflation refers to a general increase in prices, which erodes the purchasing power of money. When the supply of money exceeds the demand for goods and services in an economy, the value of money decreases. This is why it is important for individuals and businesses to consider inflation when saving or investing their money, as its value can decrease over time.
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Nov 16, 2024 Last updated |
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