Inflation and Money - 2003 Words

Unit 1: Explain how cigarettes could be called â€Å"money† in prisoner-of-war camps of World War II (refer to one or more of the three functions or characteristics of money in you answer). In World War II, each prisoner received the same parcel included cigarettes. They would exchange the good and services through barter economy. Over the time, the economic in the camps developed and the bartering system became more complicated. It was difficult to satisfy a â€Å"double coincidence of want†. In order to simplify the system, cigarettes were widely used as â€Å"money†. Cigarettes performed the function of money as a medium of exchange. This was because they were generally accepted among the prisoners. Firstly, they provide convenience for prisoner†¦show more content†¦Unit 6: In no more than 300 words, explain how changes in the Bank of England’s official rate can modify the impact of foreign inflation on domestic inflation. Since the Central Bank has the exclusive right to issue money in the economy, it can have extensive influence on the determination of interest rate in financial markets and in the economy as a whole, by adjusting the interest rate on short-term loans to financial institutions. Central Bank interest rates on these loans therefore have the most immediate impact on other short-term interest rates in the money market. By influencing interest rates, monetary policy then has an effect on the savings and expenditure decisions of individuals and corporate. [pic] In case the Central bank reduces the interest rate, increasing demand for credit, because lower lending rates can also encourage the consumption and investment. As a rule, Equity and housing prices increase the wealth of individuals, which in turn increase their propensity and ability to borrow, and thereby their propensity and ability to spend. Thus, the asset prices rise up. However, the official rate decrease unexpectedly the domestic currency will depreciate. The foreign investor withdraw saving in the UK. The demand for pounds with therefore decrease, the depreciation will make exported goods and services relatively cheaper than before. Finally, the official rate has anShow MoreRelatedInflation And The Value Of Money1710 Words   |  7 PagesInflation is defined as a sustained increase in the general level of prices for goods and services [1]. It is measured as an annual percentage increase. When there is an inflation, the same amount of money buys a smaller percentage of a good or service compared to previous years. This means the value of money drops when inflation occurs. In economics, the value of money is viewed in terms of purchasing power, which is the real, tangible goods that can be bought by money. When inflation goes up, thereRead MoreEssay on Money And Inflation578 Words   |  3 Pages Money and Inflation The nations economic stability has many factors which amount to inflation. Inflation may be caused by a number of problems, but there are some specific examples which have direct control over which way the prices and spending sway. Inflation simply means that the American dollar, in this case, is less valuable on the foreign exchange market and the gold standard is moved to higher prices; which simply means that more currency is needed to exchange for gold. Any slight changeRead More Money Supply and Inflation Essay1724 Words   |  7 PagesMoney Supply plays an important role in macroeconomic analysis, especially in selecting an appropriate monetary and fiscal policy. Considerably, I am yet to come across theoretical work that has been done on this topic (analysis money supply and its impact on other variable i.e. inflation, interest rate, real GDP and nominal GDP). 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The purpose of this paper is to see which macroeconomic factors affect aggregate stock returns most during 2008 financialRead MoreThe Effects Of Cash Reserve Ratio Reduction On Inflation, Money Supply, Employment Rates And Gross Domestic Product1977 Words   |  8 Pages2015 Spring Economics Assignment Question 1: Effects of Cash Reserve Ratio Reduction on Inflation, Money Supply, Employment Rates and Gross Domestic Product Regulators of financial matters and performance in a given country or region are often faced with the difficult task of ensuring that the performance of the economy is always positive. This is because the economy of a country directly influences the standard of living in the country through factors such as employment and the overall prices ofRead MoreThe Fisher Effect and the Quantity Theory of Money Essay examples1698 Words   |  7 PagesFisher Effect and the Quantity Theory of Money Eric Mahaney 4/7/13 EC-301-1 The Fisher effect and the Fisher equation were made famous by economist Irving Fisher. He created his equation by rearranging the equation for real interest rate, which is (r = i - Ï€). Real interest rate equals the nominal interest rate plus inflation. This is a very basic equation. Fisher manipulated it to solve for i, in order to understand the effect that inflation has on nominal interest rate. The famousRead MoreThe Inflation Definition And Influences1646 Words   |  7 Pages1.1 The inflation definition and influences Inflation is general defined as the devaluation of the currency with the comprehensive and continued rising price level, which means the purchase of money is persistent declining (James and Charles 1975). And this is generally considered as the result of the amount of money in circulation more than the actual needs of the economy. It will directly leads to the devaluation of paper money. If the income of residents do not change, then the living standardRead MoreThe Phillips Curve and The Quantity Theory of Money1128 Words   |  4 Pagesrelationship between inflation rate and the unemployment rate. When the unemployment was high, the inflation rate would be low; the inflation rate was high, the unemployment rate would be low. Here we have the statistics data of the inflation rate and unemployment rate from 2007-2011. On the other hand, Phillipss â€Å"curve† also represented the average relationship between unemployment and wage behavior over the business cycle. In the short run, there is a tradeoff between inflation rate and unemployment