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Financial Markets Essay 2

Money plays a vital role as a medium of exchange in a country's economy, allowing for more efficient transactions and promoting investments, productivity, and economic growth. Both economists and policymakers closely monitor changes in the quantity of money to gauge whether an economy is expanding or contracting and to evaluate the impact of monetary and fiscal policies. Banks dislike inflation as it reduces the purchasing power of the money they receive in loan repayments compared to the money they originally lent out, causing them to lose value.

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Ross John Jimenez
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52 views1 page

Financial Markets Essay 2

Money plays a vital role as a medium of exchange in a country's economy, allowing for more efficient transactions and promoting investments, productivity, and economic growth. Both economists and policymakers closely monitor changes in the quantity of money to gauge whether an economy is expanding or contracting and to evaluate the impact of monetary and fiscal policies. Banks dislike inflation as it reduces the purchasing power of the money they receive in loan repayments compared to the money they originally lent out, causing them to lose value.

Uploaded by

Ross John Jimenez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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NAME: Jimenez, Ross John C.

Year-Course-Section: 3-BSMA-A

ESSAY 2

1. Explain briefly the significance of money in the economy of a country.


 We all know that money plays a vital role in our daily lives especially in the
economy of a country. Its significance to the economy of a country is it can
serves as a medium of exchange. That is, money can be used as means
of payments or repayments, and maybe it serves as tangible assets.
Through money, it is an efficient way to remove inconveniences of barter
system. It also reduces double coincidence of wants and can be directly
exchanged in the market. Moreover, money promotes investments,
productivity and economic growth.

2. Why are economists and policy makers interested in measuring changes in the
quantity money?
 Both economists and policy makers are interested in measuring changes
in the quantity money because it is a depiction of economic progress and
productivity, wherein economic progress and production have a significant
impact on practically everyone in a particular economy. It enables
economists and policy makers to judge whether the economy is
contracting or expanding and promptly take necessary actions and lastly,
it allows the economists and policy makers to analyze the impact of
variables for instance monetary and fiscal policy and the likes.

3. Why don’t banks like inflation?


 Financial institutions such as banks are possibly considered as lenders
and they do not like inflation because they are really affected by inflation in
which the money repaid to them has a possibility to have a lower
purchasing power compared to the money they lent out. Consequently,
bank will lose during an inflation. Demand deposits, net of reserves,
however, will shrink in value as prices rise.

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