10. Money: role, forms, functions.

Money is necessary in most economies. Currency is one of several forms of money. Currency consists of paper bills and metal coins. Savings accounts, stocks, and bonds are forms of near money. Money and near money are used to purchase goods and services. All forms of money and near money help the economy run smoothly.

Most people use money every day. Money is any item that is widely accepted as payment for products. In the past, many things served as money - beads, shells, dog's teeth, cattle, stones, tobacco, fishhooks, and even slaves, but gold and silver have been a favorite form of money.

Value of money comes from the product for which it can be exchanged. Money fulfills 3 functions: a store of value, a standard of value and a means of exchange.

As a means of exchange money is used trade for goods and services but less complex societies use barter.

As a store of value people use money to save their wealth for the future. Storing money is easier than storing goods.

As a standard of value money is used to compare the worth of one product with that of another. The value of all goods and services the economy produces can be determined by adding up their prices. In this way economists determine GNP.

Near money is things that used for some, but not all, for example, credit cards allow a purchaser to borrow money from the seller of the purchased goods.

Money is very important in our society.

11. The supply of money

Your personal supply of money changes often. Increases and decreases of your supply of money probably affect how much you spend. Similarly, the amount of money in the total economy changes often.

Changes in the economy's money supply are more complex than changes in a personal money supply. These fluctuations in the money supply influence not only how much spending occurs but also the general level of business activity.

Often 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.

Banking laws in different countries require a bank to put a certain percentage of its deposits in reserve. Banks cannot loan out all of the money people deposit.

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 function as banks for the government and for other banks.

Central banks control the banking of the whole country and work together with the government to supervise the country's economy. The main functions of the central banks are the following:

- to issue banknotes and coins (the country's or nation's currency). They are legal tender in the country where they are produced.

- to look after the nation's gold reserves.

- to make sure that the national currency keeps its value.

- to act as bankers for the national government and the other banks in the country.

- to keep inflation under control. Inflation occurs when demand for goods exceeds supply.

Central banks usually implement monetary policy. Central banks also control the money supply. Central banks supervise the banking system.

The central bank can reduce the money supply to commercial banks by changing the reserve requirements.

Commercial banks are the public or private banking institutions which people use for their everyday money matters. People may have three basic types of bank account: Current account, Deposit account, Investment account.