Economics Questions: The Barter System

 Essay about Economics Concerns: The Barter System

RESPONSE SCHEME

ECO551/553

APRIL 2010

QUESTION you

a) A barter transact system is a method whereby people exchange merchandise for different goods.

( with example)

b) There are numerous problems facing the dicker trade. Three of these trouble is:

i) Double coincidence of wants

ii) Rate of exchange

iii) Divisibility

( with explanation)

(b) The several functions involving are the following:

i) Medium of exchange

ii) Product of consideration

iii) Shop of value

iv) Standard pertaining to deferred payment

( with explanation)

QUESTION two

a) Functions of a financial system

(i) Mobilisation of funds

(ii) Flexibility in purchase

(iii) Implementation of monetary policy

(iv) A competent savings method

( with explanation)

(b) Participants in the financial system

The financial system consists of individuals, firms, markets and government that are in some way linked to assisting the process of exchange of financial assets. The individuals, firms and federal government, which need to borrow, can be called the " deficit” units. However , if they have surplus cash to provide, they would become called the " surplus” units.

The participants and the roles enjoyed by them can be categorized as employs:

(i) Credit seekers and lenders

(ii) Capital raisers and investors

(iii) Financial intermediaries

(iv) Companies

( with explanation)

PROBLEM 3

a) Loanable Finance Theory

•determines the interest rate using the require and supply evaluation in the connect market.

•determinants of require and supply of assets: wealth, expected comes back risk, liquidity, price.

Selling price of provides, PBs

Bs2

P(i)

Bd2

Bd

Queen 0 Q1Quantity of you possess, B

b) i)

Value of you possess, PBs1

Bs2

P(i)

Bd1

Q1Q2Quantity of bonds, M

Increase in federal government borrowing, boost the supply of you possess at each connection price.

(with explanation)

ii)

Cost of you possess, PBs1

P(i)

P(i)*

Bd2Bd1

Amount of bonds, W

Increase in the expected results on additional assets elevates the quantity demand of the possessions, thus decrease the demand for provides.

QUESTION four

a) Keynes felt the need for money counted on income and interest rates.

Money happened to aid normal deals and as a precaution for unexpected ventures. For both of these motives, money demand counted on income. Persons also kept money as an asset, for speculative reasons. The risky motive depends on income and interest rate. People hold more money for speculative purposes when they expect relationship prices to fall, making a negative go back on you possess.

( with explanation & diagram)

Since funds demand varies with rates of interest, velocity improvements when interest rates change. Also, since funds demand depends upon expectations regarding future interest rates, unstable anticipations can make money demand, and thus velocity, unstable.

In Friedman's theory, improves in long term income boost money require. Increases in the returns in bonds in accordance with money and the returns about equities relative to money lower money demand. Increases in the returns upon goods relative to the return on money, which is the expected rate of inflation relative to the return about money, reduce money demand.

(equation and elaboration)

Md/p= Demand for actual money

Ж’= function of/depends upon

Yp = Friedman's measure of wealth, generally known as permanent cash flow (technically, this current discount value of all predicted average long-run income)

rm= Expected returning on funds

rb= Anticipated return on bonds

re= Predicted return upon equity (common stocks)

ПЂe= Expected pumpiing rate

Speed is determined by exactely actual to permanent profits....


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