Money

Money is ‘standard of deferred payment’, which simply means that one can settle future debts with it. In the past money itself used to be actually worth something – the materials that were used to create coins were things like gold and silver which had intrinsic value. What operates now is a system called ‘fiat money’. This chapter discusses why money exists and how we measure it. Moreover, it describes what affects how much money people hold and where money comes from and how banks can ‘create’ it. In addition to this, it shows the relationship between money, activity and inflation. Finally, it presents the importance of borrowing to the economy and the credit crunch.