Elmeerajh Celestairre Judavar BSMA 1

ACTIVITY 2
1. Explain briefly how money facilitates the flow of resources in macro-
economy.
 Money serves as the oil that keeps the machinery of our world.
This explains that money makes the economy go round and
make progress. It is broadly an important component to gain,
produce, or make a successful economy to live.
2. Enumerate and describe the sources of demand for money.
 Transaction Demand- where money demanded for day-to-day
payments through balances held by household and firms. It
does not depend on the interest rate.
 Precautionary demand- Money demanded as a result of
unanticipated payments. This also varies with GDP.
 Speculative demand- money demanded because of expectations
about interest rates in the future. The people will decide to
expand their money balances and holds off on bond purchases
if the rates of interest is expected to rise.
3. When is an asset suitable to use as a medium of exchange?
 To be able the asset to be accepted as a medium of exchange, it
should be reliable, interchangeable, and have an intrinsic value.
4. Which alternative do you prefer P4, 500 cash or P1, 200 each year for a
period of 4 years. Assume a discount rate of 10% annuity.
 Base on the time value of money, the amount you received
today is worth more than the amount you will receive later. In
this reason, it shows that the money will be invested for the
meantime. Hence, I would prefer the P 4,500 cash rather than
the P1, 200 per year. The discount rate reflects the time value
of money, while the interest rate applied to the annuity
payments reflects the cost of borrowing or the return earned on
the investment.