The document covers the evolution of the use of means of payment, as well as the causes and effects of inflation and the types of inflation. This is subject matter from the 6th year.
The monetary system
1. The role of money
- Why do we need money in our society?
Money is needed to pay for goods and services. It makes it possible to gather those
goods and services to fulfil your needs.
- Has there always been money?
No.
- What was the alternative in the earlier days?
There was a barter economy which means that people traded goods or services for
other goods and services. Another alternative was to use shells.
- Why didn’t these alternatives last?
They were not durable (e.g. bread) or it wasn’t acceptable for all and unlimited.
- How much does it cost to print one banknote (or bill) and how much euros can one
banknote be worth?
It costs 0.10 euros (intrinsic value) to print one banknote but it can be worth 500
euros (nominal value). This is the difference between the intrinsic and nominal value
of money.
Intrinsic value: werkelijke waarde
Nominal value: de waarde die eraan gegeven wordt
- Why isn’t it a good idea to keep printing money?
Money will become worthless because prices will increase all the time.
- How do we call this phenomenon?
Inflation
The functions of money:
- A medium of exchange (ruilmiddel)
- A unit of account (rekeneenheid
- A store of value (waardbewaring)
, The characteristics of money:
- Acceptable to all
- Portable
- Durable
- Divisible
- Limited
- Difficult to imitate
2. Cash and Bank money
- Explain the difference between bank money and cash money.
Bank money is held by a bank in electronic or other non-cash forms.
Cash money is money in the form of notes and coins.
Bank money is also called scriptural money.
- Is there more bank money or cash money?
There is a lot more bank money than cash money.
Almost 85% of the total supply of money consists of bank money.
How banks create money:
Workbook!
- How much money banks can create depends on the reserve ratio (rr). The higher this
percentage, the less money that can be created. Which formula can be used to
calculate how much money banks can create with a certain amount of deposed
money (D0)?
D0 . [(1- rr) / rr]
3. Inflation
- Describe the concept inflation.
It can be described as a general rise in price.
- Sum up the three possible causes of inflation:
Cost-push inflation:
It occurs because of rising costs. Firms will have to increase their prices and
this leads to inflation.
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