Theory question 110
Money and Inflation(a) What is (i) commodity money? (ii) token money? (iii) fiduciary issue? (iv) quasi money?
(b) State any four functions of money.
Show the model answer
(a)(i) Commodity money: goods that are generally accepted as money and also have value as goods, e.g. cowries, salt, cattle.
(ii) Token money: money whose face value is greater than the value of the material it is made of, e.g. coins and notes.
(iii) Fiduciary issue: the part of currency issued by the central bank that is not backed by gold or foreign reserves, only by government securities/confidence.
(iv) Quasi money (near money): assets that are easily converted into money but are not themselves a medium of exchange, e.g. savings and time deposits, treasury bills, bills of exchange.
(b) Medium of exchange; measure (unit) of value; store of value; standard of deferred payment.
Four functions of money: medium of exchange, unit of account, store of value, standard of deferred payment.