gcse economics - money -money supply

This is the total stock of money available in an economy at a point in time.

The money supply includes:

- Notes and coins
- Money in a current account in the bank
- Money in a savings account
- Money in a building society

If it is tied up for a long time i.e. you can’t withdraw it for 2 years it is not classed as money.

FUNCTIONS OF MONEY

1. It can be used as a means of exchange or to buy resources
2. It is a measure of value e.g. 1 mars bar = 40p
3. It is a store of value e.g. it keeps its value

WHAT IS GOOD MONEY?

1. It should be ACCEPTABLE
2. It should be DURABLE and hard-wearing
3. It should be PORTABLE and easy to carry
4. It should be DIVISIBLE i.e. you can give change
5. It must be SCARCE

SAVINGS

Why do people save?

1. To buy a good in the future e.g. a car
2. In case something goes wrong e.g. lose job
3. To plan for retirement
4. To gain interest from the bank

ACTION

a. Make a list of your own money supply. Can you calculate the total?
b. How would you find out the money supply of the UK economy?
c. Why is a £1 coin ‘good money’?
d. Why is a pig not ‘good money’? Why is a stone not ‘good money’?
e. What would be the impact on the economy if lots of people started to save more?

 SMART THINKING

a. If the supply of money was to increase significantly, what would happen to its value?