The Key Functions Of Money And The Money Market

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Money plays a vital part in the economy. What are the key functions of money and why is it so important? Money briefly is a medium of exchange; it is a simple tool used to count one’s wealth (Sloman, Norris & Garrett, 2014, p.264). Its key features are to buy and sell both products and services. If money was not created the process of barter would be reintroduced into society. Goods, products and services would be exchanged for other goods or services. Generally finding an individual who is willing to barter with is quite hard. Therefore, money was created to eliminate this difficulty. Money is extremely liquid (meaning that it can be easily exchanged for another good or service) it retains its value and is conveniently stored. What are the …show more content…

It is therefore the RBA’s responsibility to ensure that the monetary policy be used to the greatest advantage to all Australians. The overall stability of the currency of Australia is controlled by this bank. It is required that the RBA maintains full employment throughout Australia, thus resulting in economic prosperity. The welfare of the people must be at the head of the Reserve Bank of Australia’s responsibility. It is in charge of keeping the money market at its equilibrium by adjusting interest rates in the economy. How can the RBA control the money market and where is the equilibrium? The equilibrium in the money market is the point at which demand for money meets with the supply of money. The equilibrium interest rate is chosen when the demand of money meets with the amount of money that is supplied. Interest rates are changed by the RBA to achieve the equilibrium (Sloman, Norris & Garrett, 2014, p.271). On the money market graph there are two lines. Money supply is the purple vertical line and displays the amount of money within the economy. Money demand is in orange and displays how much demand there is for money. The point of intersection is the equilibrium

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