Danica Jane B.

Ramos

BSAC 2-2

1.Explain the role of money in nations economy.

Money has always been recognized as an essential tool in nations economy. It is known

as one of everybody's most significant commodities.

In the economy today, money has a variety of roles. First, it is used as a medium of

exchange that is widely acceptable for the payment of goods and services. It is also a unit of

account in which it is used to record wealth owned, traded, or spent-personally and nationally.

Besides that, money is considered a store of value, that is, the means by which wealth can be

held. Moreover, money serves as a means by which people can store their wealth for future use.

Lastly, it acts as a standard for deferred payments.

Money, beyond the basic needs, helps people achieve life goals and supports important

things – education, family, and health.

2. How can the country’s monetary policy respond during recessions?

The country’s monetary policy has a very important role in the economy. It increases

liquidity to create economic growth. It reduces liquidity to prevent inflation as well. Moreover,

monetary policy helps in adjustments of interest rates and the money supply.
 Monetary policy is under the control of the Federal Reserve System “central bank” and is

completely discretionary. Central banks use bank reserve requirements, interest rates, and the

number of government bonds that banks must hold.

Monetary policy plays a crucial role during recession. When that happens, the central

bank uses monetary policy to increase the money supply, increase the quantity of loans, shift

aggregate demand to the right, and reduce interest rates. Through these actions,

the economy adjusts and recovers some of the gains lost during the recession.