11. The supply of money.

The amount of money in the economy changes often. These fluctuations in the money supply influence not only how much spending occurs but also the general level of business activity. The government prints new bills and mints new coins every year to replace those that are worn. It also changes the money supply to meet people’s needs. The supply of checking account money, or demand deposits, also changes.

There is money supply growth. This expansion of the money doesn’t continue forever. A deposit in a checking account can increase the money supply by about 5 times the original amount. Several factors stop the process of expansion or even reverse it.

First, federal law requires the bank to keep a percentage of its demand deposits in reserve. Banks cannot loan out all of the money people deposit. Second, expansion will stop if the bank stops making loans. Lending may cease if the bank cannot find any more people it believes to repay a loan. Also, if people stop putting their money to checking accounts, the bank will not be able to make loans. Finally, if many people suddenly withdraw their money all at once, the bank must do more than stop making loans. It will have to start calling for payment of its loans so that it can increase its reserves.

12. The role of central banks and commercial banks.

The bank of England, the Federal Reserve Board in the USA, the Bundesbank in Germany, and the Central bank of Russia are central banks which functions as banks for the government and for other banks.

There are several functions of central banks: they make monetary policy, control the money supply, act as lender of last resort to commercial banks with liquidity problems, issue coins and banknotes, supervise the banking system.

To ensure the safety of the banking system, central banks impose reserve requirements, obliging commercial banks to deposit a certain amount of money with the central bank at zero interest.

By increasing and decreasing prices and wages, the central bank indirectly influences interest rates, demand, output, growth, unemployment and prices.

The central bank can reduce the reserves available to commercial banks by changing the reserve requirements. This action reduces the amount of money that banks can create and makes money tight or scarce.

13. Forms of money.

Money means coins, banknotes and cash in the bank account. Today’s money must have certain qualities to be successful:

1. Standard (all of the same kind, look the same, weight the same…)

2. Durable (strong, long-lasting so that they are a store of value and do not wear out easily)

3. Scarce (they must be difficult to come by to keep their value)

4. Acceptable (must be accepted as a medium of exchange)

5. Portable (must be easy to carry)

6. Divisible (it must be possible to divide the units from the large value into smaller)

In the past many things were used as the means of exchange — beads, shells, cattle, stones — there is no end to them. In time people realized that metals were superior to the commodities, previously mentioned because coins made from metal are homogeneous, portable and easily divisible by weight.

The advent of coinage is a step forward because coins are free from most of the disadvantages of earlier forms of money. Originally people minted coins locally, gradually the state accepted responsibility for both the manufacture and the quality of coinage.

After coins came notes, such as gold and silver, and only after ages there was made today’s money.

To sum up all the main points I can say that money is very important invention in our life. It is a very useful tool, which helps us to live, it simplifies all the forms of today’s.