a. What is money?
b. Explain the following concepts:
i. value of money:
ii. demand for money,
(c) ldentify any four determinants of transaction demand for money
Explanation
(a) Money is anything that is generally accepted as a medium of exchange and used in the settlement of debts.
(b) i. The value of money is the number of goods and services a given monetary unit can buy. The greater the number of goods and services that can be purchased with a given unit of money, the greater the value of money and vice versa.
ii. The demand for money is a derived demand. It is the desire to hold money in liquid form rather than investing it in stocks and bonds. People hold money for transactions, precautionary and speculative motives
(c) i. Level of income: The higher the amount of income one earns, the higher the amount of money that would be held to meet day-to-day expenses.
ii. Interval between paydays: The shorter the interval between paydays, the lower the amount of money to be held while the longer the amount of money to be held while the lul the interval, the more the amount to be held
iii. The rate of interest: The higher the rate of interest, the lower the amount held for transactions and vice versa.
iv. The price level: If the price level is high, more money has to be held to meet daily transactions and vice versä.
v. Status in society: A well-placed man in society is expected to hold a large sum of money tO maintain his status.
vi. The size of one's family: A person with a large family is expected to hold more money and vice versa.
(vii) Personal tastes: A person with a high taste for goods will normally hold more money.
viii. Availability of credit facilities reduces the tendency to hold more money for transactions.
ix. Advancement in technology in the banking sector, e.g.e-banking. debit card, etc. reduces the amount of money held for transactions.