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

- The barter system served as a barrier to the division of labour and specialization
among people, which is a crucial factor for boosting productivity and economic
progress, in the absence of simple exchange of products and services. Additionally, the
expansion of production of goods and services and the ensuing increase in personal
incomes are both results of economic growth. The amount of transactions in the
emerging economy therefore rises. This increases the need for money to finance the
more transactions that the increasing level of economic activity brings about. Thus, if
sufficient money is not available to fulfil the demands of a rise in the level of economic
activity, the process of economic expansion would be restrained.
2. Why are economists and policy makers interested in measuring changes in the
quantity money?
- Because it tracks changes in the size of the overall economy, GDP is a crucial
metric for economists and investors. In addition to providing a thorough assessment of
the state of the economy, GDP reports shed light on the variables promoting or
impeding economic growth.
Prices of financial assets are heavily influenced by changes in economic health
as indicated by changes in the GDP. Stronger economic growth is positively connected
with share prices because it frequently results in better business profitability and
investor risk appetite. Stronger GDP growth, on the other hand, might harm fixed-
income investments like bonds by depressing their relative return appeal.
While GDP figures give a thorough assessment of the state of the economy, they
are more of a glimpse in the rear-view mirror than a leading economic indicator. Markets
monitor GDP figures according to consensus forecasts, other more time-sensitive
indicators, and the reports that came before them.
3. Why don’t banks like inflation?
- The value of money decreases due to inflation. As a result, those who borrow
money profit from increased inflation rates when they repay the debt. Because of
inflation, the interest rate that a borrower pays is actually lower.
Sometimes, inflation receives a bad rap. For instance, some individuals believe
that inflation worsens everyone's situation. But it turns out that inflation has both winners
and losers. In general, you will gain from unexpected inflation if you have debt that must
be repaid with a set amount of interest. On the other hand, if someone owes you
money, the money you receive in repayment will not be as valuable as the money you
lent out if there is an unanticipated increase in inflation.