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6. Explain the following terms: (i) Barter; (ii) Money; (iii) Price Inflation - Leaving Cert Economics - Question 6 - 2014
Question 6
6. Explain the following terms: (i) Barter; (ii) Money; (iii) Price Inflation. (b) In November 2013 the ECB reduced interest rates. (i) What do the initials ECB re... show full transcript
Worked Solution & Example Answer:6. Explain the following terms: (i) Barter; (ii) Money; (iii) Price Inflation - Leaving Cert Economics - Question 6 - 2014
Step 1
Explain the following terms: (i) Barter
Answer
Barter refers to the direct exchange of goods or services without the use of money. In a bartering system, individuals trade items of value directly. This method relies on a mutual agreement of value and the presence of a double coincidence of wants, where each party desires what the other offers.
Step 2
Explain the following terms: (ii) Money
Answer
Money is any item or verifiable record that is accepted as payment for goods and services and repayment of debts. It serves three primary functions: a medium of exchange, a unit of account, and a store of value. Money can come in various forms, such as coins, banknotes, and digital currency.
Step 3
Explain the following terms: (iii) Price Inflation
Answer
Price inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured as an annual percentage increase. Inflation can be caused by various factors including demand-pull inflation, cost-push inflation, and built-in inflation.
Step 4
Step 5
In November 2013 the ECB reduced interest rates. (ii) Explain the underlined term.
Answer
The term 'interest rate' refers to the cost of borrowing money or the return on savings. It is expressed as a percentage of the total amount loaned or saved. Interest rates influence economic activity; lower rates generally stimulate borrowing and spending.
Step 6
In November 2013 the ECB reduced interest rates. (iii) Discuss three possible economic effects of a reduction in interest rates on the Irish economy.
Answer
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Encouragement of Borrowing: Lower interest rates make borrowing cheaper, encouraging households and businesses to take out loans for consumption and investment, which can boost economic growth.
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Increased Disposable Income: With lower monthly repayments on existing loans, consumers have more disposable income, which can lead to increased spending on goods and services, stimulating the economy.
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Enhanced Competitiveness: Reduced borrowing costs can lead to increased investment in businesses, improving productivity and competitiveness, especially for export-driven sectors.
Step 7
A number of retail banks have shut down operations in Ireland in recent times and some credit unions are in financial difficulty. (i) Outline two functions of commercial/retail banks.
Answer
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Savings Facilities: Commercial banks provide secure accounts for depositors and pay interest on their savings.
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Lending Services: They offer loans, including mortgages and personal loans, to individuals and businesses, facilitating economic activity.
Step 8
A number of retail banks have shut down operations in Ireland in recent times and some credit unions are in financial difficulty. (ii) Outline two economic effects of the reduction in the number of banks on the Irish economy.
Answer
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Loss of Services: The closure of banks results in decreased access to banking services, which can inconvenience customers and reduce economic activity in areas affected by bank closures.
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Job Losses: Bank closures can lead to significant job losses, both directly within the banks and in related sectors, negatively impacting local economies.
Step 9
A number of retail banks have shut down operations in Ireland in recent times and some credit unions are in financial difficulty. (iii) Outline one reason why some credit unions are in financial difficulty.
Answer
One reason some credit unions are in financial difficulty is due to high levels of bad debts, often resulting from borrowers failing to repay their loans, which affects the financial stability of the credit union.