Money

1- Money is anything commonly accepted as a medium of exchange for goods,

services, or resources. It has been used for at least the past 3,000 years,
replacing the system of bartering. Money has four main functions: medium
of exchange, measure of value, standard of deferred payment, and store of
value.
2- The medium of exchange function refers to money being used to facilitate
trade by avoiding the inefficiencies of bartering. To be widely acceptable,
money should have stable purchasing power and possess characteristics such
as constant utility, low cost of preservation, transportability, divisibility,
high market value, recognizability, and resistance to counterfeiting.
3- As a measure of value, money serves as a standard unit of measurement for
the cost of goods, services, or assets. It must be divisible, fungible, and
countable.
4- Money also acts as a standard of deferred payment, allowing debts to be
settled. However, the real value of debts may change due to inflation or
deflation.
5- Lastly, money serves as a store of value, allowing individuals to save and
retrieve it at a later time. Common alternatives that act as stores of value
include real estate, gold, silver, precious stones, collectibles, livestock, and
stock.

Inflation
1- The document then defines inflation as a rise in the general price level,
resulting in a fall in the value of money. Inflation occurs when there is an
excess supply of money compared to the available goods and services. The
main causes of inflation are demand-pull inflation, cost-push inflation,
monetary inflation, structural inflation, and imported inflation.
2- To control inflation, various methods can be employed. One approach is
through monetary policy, which involves regulating the flow of money
supply to influence interest rates and credit availability. By controlling total
expenditures, inflation can be mitigated. Other methods include fiscal
policy, supply-side policies, and wage and price controls.
 3- In summary, the document discusses the functions of money and the causes
of inflation, as well as methods to control inflation.

Key points
1. Money is a widely accepted medium of exchange, functioning as a unit of
account, standard of deferred payment, and store of value.
2. The functions of money include enabling trade without bartering, serving as a
medium of exchange, a unit of account, a standard of deferred payment, and a store
of value.
3. Inflation is defined as a rise in the general price level due to excess money
supply and limited goods and services.
4. The main causes of inflation are demand-pull, cost-push, monetary, structural,
and imported inflation.
5. Methods to control inflation include monetary policy, reducing demand, and
instituting wage and price controls.

Questions
1. What are the four main functions of money?
A. Enabling trade, unit of account, standard of deferred payment, store of value
B. Medium of exchange, unit of account, standard of deferred payment, store of
value
C. Enabling trade, medium of exchange, unit of account, store of value
D. Enabling trade, medium of exchange, standard of deferred payment, store of
value
Answer: B
Citation: "In the past, money was generally considered to have the following four
main functions. That is, money functions as a medium of exchange, a unit of
account, a standard of deferred payment, and a store of value."
2. What is a unit of account?
A. A standard monetary unit of measurement of value/cost of goods, services, or
assets
B. A standard of deferred payment
C. A recognized form of exchange
D. A form of money or currency
Answer: A
Citation: "A unit of account is a standard monetary unit of measurement of
value/cost of goods, services, or assets. It is one of the well-known functions of
money."
3. What is the main cause of demand-pull inflation?
A. Increase in wages and disposable income
B. Increase in production costs
C. Excessive supply of money
D. Increase in demand for goods and services exceeding the supply
Answer: D
Citation: "Demand-pull inflation occurs when the consumers, businesses or the
governments demand for goods and services exceed the supply; therefore the cost
of the item rises..."
4. What is the primary method to control inflation according to monetarists?
A. Reducing demand through fiscal policy
B. Increasing interest rates
C. Instituting wage and price controls
D. Liberalizing prices
Answer: B
Citation: "Monetarists emphasize increasing interest rates (reducing the money
supply, monetary policy) to fight inflation."
5. What are the characteristics of a widely acceptable medium of exchange?
A. Constant utility, high cost of preservation, low transportability
B. Constant utility, low cost of preservation, high transportability
C. Variable utility, high cost of preservation, low divisibility
D. Variable utility, low cost of preservation, high divisibility
Answer: B. Constant utility, low cost of preservation, high transportability
6. What is the main cause of demand-pull inflation according to the document?
A. Increase in production costs
B. Increase in wages and disposable income
C. Excessive supply of money
D. Increase in government spending
Answer: B. Increase in wages and disposable income
7. Which of the following is not considered a common alternative that acts as a
store of value?
A. Real estate
B. Gold
C. Livestock
D. Crypto currency
Answer: D. Crypto currency
8. What is the primary method to control inflation according to Keynesians?
A. Reducing demand through fiscal policy
B. Increasing interest rates
C. Instituting wage and price controls
D. Liberalizing prices
Answer: A. Reducing demand through fiscal policy
9. Which of the following is not a characteristic of a widely acceptable medium of
exchange?
A. Recognizability
B. High market value
C. Variable utility
D. Divisibility
Answer: C. Variable utility
9. What is the main cause of cost-push inflation?
A. Increase in demand for goods and services exceeding the supply
B. Increase in production costs
C. Excessive supply of money
D. Increase in wages and disposable income
Answer: B. Increase in production costs
10. What is the primary method to control inflation according to the document?
A. Increasing government spending
B. Reducing interest rates
C. Instituting wage and price controls
D. Controlling total expenditures through monetary policy

Answer: D. controlling total expenditures through monetary policy

11. What is the main characteristic of a unit of account?
A. High market value
B. Fungibility
C. Constant utility
D. Low cost of preservation
Answer: C. Constant utility

True or False:
1. Inflation occurs when the amount of money exceeds the amount of goods and
services available.
Answer: True
2. Demand-pull inflation occurs when the supply of goods and services exceeds the
demand.
Answer: False
3. Monetary inflation occurs when there is an excessive supply of money.
Answer: True
4. Imported inflation occurs when the inflation of goods and services from foreign
countries increases prices for imported goods or services.
Answer: True
5. Structural inflation is caused by an increase in the supply of money.
Answer: False

6. Money is considered a recognized form of exchange but does not act as a store
of value.
Answer: False
7. Inflation occurs when the amount of purchasing power is higher than the output
of goods and services.
False
8. Monetary inflation occurs when the government increases the money supply
faster than the quantity of goods increases.
Answer: True
Essay Question:

1- Explain the four main functions of money as described in the document and
provide examples to illustrate each function.

The four main functions of money as described in the document are:

1. Medium of Exchange: Money serves as a medium of exchange, allowing goods
and services to be traded without the need for bartering. For example, when a
person sells a car for money, the money received can then be used to purchase
groceries, pay for services, or buy other goods.
2. Unit of Account: Money provides a common measure for valuing goods and
services. For instance, prices of different items are quoted in a common unit of
account, such as dollars or euros, which allows for easy comparison of their values.
3. Store of Value: Money acts as a store of value, allowing individuals to save and
store wealth for future use. For example, when a person saves money in a bank
account, the money retains its value over time and can be used to make purchases
or investments in the future.
4. Standard of Deferred Payment: Money allows for debts and obligations to be
settled in the future. For instance, when a person takes out a mortgage to buy a
house, they agree to make payments in the future using money as the standard for
settling the debt.
These functions illustrate how money facilitates economic transactions, provides a
measure of value, preserves wealth, and enables future payments.

2- Discuss the main causes of inflation as outlined in the document and provide
examples to illustrate each cause. Additionally, explain the methods
suggested in the document to control inflation.

- The main causes of inflation outlined in the document are demand-pull

inflation, cost-push inflation, monetary inflation, structural inflation, and imported
inflation.
- Examples:
 - Demand-pull inflation: This occurs when the demand for goods and services
exceeds the supply, leading to a rise in prices. An example is when an increase in
disposable income leads to higher aggregate spending.
- Cost-push inflation: This is caused by an increase in production costs, such as
wages or profit margins, leading to higher prices for goods and services.
- Monetary inflation: This occurs when there is an excessive supply of money
compared to the quantity of goods, resulting in inflation.
- Structural inflation: This is caused by a government's monetary policy and is
built into an economy due to various institutional factors, especially in developing
countries.
- Imported inflation: This occurs when inflation in goods and services from
foreign countries increases prices for imported goods and services, affecting the
cost of living.

The methods suggested in the document to control inflation.

- The document suggests several methods to control inflation, including:
- Monetary policy: Regulating the flow of money supply to influence interest
rates and credit availability.
- Fiscal policy: Using increased taxation or reduced government spending to
reduce demand.
- Supply-side policies: Focusing on increasing the supply of goods and services
to counter inflationary pressures.
- Wage and price controls: Instituting controls on wages and prices to mitigate
inflation.