Money and Banking: Analysis of Homework Assignment Solutions

This homework assignment on Money and Banking delves into the origins of money, tracing its evolution from non-economic factors like barter to modern digital payment systems. It examines the causes and consequences of inflation, differentiating between the factors that drive it and the effects i...Read More

Money and Banking

TABLE OF CONTENTS
Question 1........................................................................................................................................3
Question 2........................................................................................................................................3
Question 3........................................................................................................................................4
References........................................................................................................................................5

QUESTION 1
The origin of money was from non-economic causes such as tribute, blood-money, barter, trade,
bride-money, religious and rituals, commerce, affected ornamentation also from substitute as the
common drudge among the economic men (Borio, 2013). The money origin was made because it
was more convenient, durable, portable and can be easily stored, and contains high-value density
and could be easily exchanged, thus it was accepted as money (Moran, 2013). Therefore the
origin of money was developed from the customs, and the inelegance of barter system as it
offered an economic desire and it developed freely in various parts of the whole world.
It is said that Money makes changes in society and society make changes are money, and this
approach will always to be continued. Although the financial innovation has changed several
practices in the business, its organization stayed integral (Lietaer, 2013). New systems of
payments have been set up by digital technology such as Apple pay, Paypal by making it easier
for sellers to accept electronic payment. This factor indicates that in future, Banknotes,
transaction and currencies might be disappeared; it is because it is generally not preferred by the
young generation and new approaches are more secure, transparent, cost efficient and reliable
(Kroszner, 2015).
QUESTION 2
Inflation is caused at the point where aggregate demand is comparatively higher than the
aggregate supply of goods and services. The factors causes inflation are Increase in Money
Supply, Disposable Income, exports, Public Expenditure and consumer expanding (Blanchard,
2015). Other causes of inflation are cheap monetary policies, Law of Diminishing Returns
expansion of the private sector, black money, etc (Brunnermeier, 2014). consequence of inflation
is a redistribution of income and wealth to manage the economy as it makes a change in real
value of factors such salaries, interest, rents, dividends and earnings.
Deflation takes place when demand falls, and less demand will lead to lower price, which
ultimately turns into a bidding war. It is occurred primarily due to changes in technology, the
structure of capital markets, decrease in currency supply, Deflationary Spiral and Austerity
Measures (Galati, 2016). This result in a reduction of business revenues, alternations in spending
pattern of customers, reduced credits and Wage Cutbacks and Layoffs.

QUESTION 3
Accommodative monetary policy refers to the policy of enabling the supply of money to
go ahead with the demand and national income; it generally engages low rates of interest. It can
also be referred as easy monetary policy or loose monetary policy (Ciccarelli, 2017). The
accommodative monetary policy usually involves lower rates of interests that tend to support
economic growth and expenditures by making economic borrowings increase in the supply of
money.
The extraordinary expansion of monetary policy will not be able to prevent the economy
from going back into recession. The Abenomics’s three arrows easy monetary, fiscal expansion
and reformation of structure, it can be held if these three arrows work together and balance each
other in order to attain goals of the economy (Claeys, 2015). The experience of the macro
economic policy of Japan has implemented to Europe also in the same situation of lower growth
and inflation.

REFERENCES
Blanchard, Olivier, Eugenio Cerutti, and Lawrence Summers. Inflation and activity–Two
explorations and their monetary policy implications. No. w21726. National Bureau of Economic
Research, 2015.
Ciccarelli, Matteo, Chiara Osbat, Elena Bobeica, Caroline Jardet, Marek Jarocinski, Caterina
Mendicino, Alessandro Notarpietro, Sergio Santoro, and Arnoud Stevens. "Low inflation in the
euro area: Causes and consequences." (2017).
Claeys, Grégory, and Zsolt M. Darvas. The financial stability risks of ultra-loose monetary
policy. No. 2015/03. Bruegel Policy Contribution, 2015.
Galati, Gabriele, Zion Gorgi, Richhild Moessner, and Chen Zhou. "Deflation risk in the euro area
and central bank credibility." (2016).
Lietaer, Bernard. The future of money. Random House, 2013.
Moran, Timothy, Markus Brede, Antonella Ianni, and Jason Noble. "The origin of money: an
agent-based model." (2013).
Kroszner, Randall S., and Philip E. Strahan. "Regulation and deregulation of the US banking
industry: causes, consequences, and implications for the future." In Economic Regulation and Its
Reform: What Have We Learned?, pp. 485-543. University of Chicago Press, 2014.
Brunnermeier, Markus K., and Yuliy Sannikov. "A macroeconomic model with a financial
sector." The American Economic Review 104, no. 2 (2014): 379-421.
Borio, Claudio. "The financial cycle and macroeconomics: What have we learnt?." Journal of
Banking & Finance 45 (2014): 182-198.