Money and Banking
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The use of money and its transmission through the economy by means of a banking system characterise modern economies. Money has been used for thousands of years, but has evolved to more sophisticated forms and its transmission has improved over time. There have long been questions over the effects money and banking have in the economy. Frequently they have given rise to intense debate, and are seldom far from discussion on the economy's performance, prices, exchange-rates and so on. The British economy was the first to industrialize. It developed a sophisticated financial system around the same time. The relationship between the two has been a constant topic of discussion.
Beyond the point thus described changes in money can only do damage. Excess money (in relation to output) can in the long-run only produce inflation. Excess money in the short run confuses people. In the short run, if there is an increase in the quantity of money people feel better off and set out to spend more. Producers imagine that there is a genuine increase in demand for their product and therefore raise their output (employ more workers o work longer hours). In the r long-run output has to return to its trend and all that is left is the higher price level brought about by the initial injection. (See Figure 1)
The beginning of banking
Money
Money is whatever a community accepts as money. In its ideal form it will be a g ood medium of exchange, a store of value, and also provide the unit of account. In primitive societies cattle, shells, tobacco, and other items have been used. The search for more suitable forms gave rise to metals, and more recently to paper based on metals. The form currently in use is paper not based on metals, but based only on government assurances that they will not produce too much of it. The introduction of money to an economy raises welfare. A primitive economy operating on barter can be transformed by the introduction of money. Money removes the
The use of money and its transmission through the economy by means of a banking system characterise modern economies. Money has been used for thousands of years, but has evolved to more sophisticated forms and its transmission has improved over time. There have long been questions over the effects money and banking have in the economy. Frequently they have given rise to intense debate, and are seldom far from discussion on the economy's performance, prices, exchange-rates and so on. The British economy was the first to industrialize. It developed a sophisticated financial system around the same time. The relationship between the two has been a constant topic of discussion.
Beyond the point thus described changes in money can only do damage. Excess money (in relation to output) can in the long-run only produce inflation. Excess money in the short run confuses people. In the short run, if there is an increase in the quantity of money people feel better off and set out to spend more. Producers imagine that there is a genuine increase in demand for their product and therefore raise their output (employ more workers o work longer hours). In the r long-run output has to return to its trend and all that is left is the higher price level brought about by the initial injection. (See Figure 1)
The beginning of banking
Money
Money is whatever a community accepts as money. In its ideal form it will be a g ood medium of exchange, a store of value, and also provide the unit of account. In primitive societies cattle, shells, tobacco, and other items have been used. The search for more suitable forms gave rise to metals, and more recently to paper based on metals. The form currently in use is paper not based on metals, but based only on government assurances that they will not produce too much of it. The introduction of money to an economy raises welfare. A primitive economy operating on barter can be transformed by the introduction of money. Money removes the