QUESTIONS

31.01.2016 13:43

QUESTIONS:

1. What is economy?

2. What are the sectors of economy?

3. What is the function of money in economy?

4. What are the cycles of economy?

ANSWERS:

1. Is an area of thep production, distribution  or trade, and diminution of goods and services by different agents in a given geographical location. The economic agents can be individuals, businesses, organizations, or governments. Transactions occur when two parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency.

2. Primary: Involves the renewal and production of organic  materials.EXAMPLE: A coal miner and a fisherman would be workers in the primary sector.

Secondary: Involves the transformation of organic or intermediate materials into goods.EXAMPLE: A builder and a dressmaker would be workers in the secondary sector.

Tertiary: Involves the supplying of services to consumers and businesses.EXAMPLE: A shopkeeper and an accountant would be workers in the tertiary sector.

3. Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account.

Medium of exchange: Money's most important function is as a medium of exchange to facilitate transactions. Without money, all transactions would have to be conducted by exchange, which involves direct exchange of one good or service for another. 

Store of value:In order to be a medium of exchange, money must hold its value over time; that is, it must be a store of value. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. 

Unit of account:Money also functions as a unit of account, providing a "common measure of the value" of goods and services being exchanged. Knowing the value or price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase.

4.Boom: A boom occurs when real national output is rising at a rate faster than the trend rate of growth.

Recession: Is a significant decline in economic activity spread across the economy lasting more than a few months 

A depression is a prolonged and deep recession leading to a significant fall in output and average living standards

Recovery: Is a period of economic expansion, typically after a recession.