2. Contents
Four functions of money
Monetary Policy
Central Banks policy as lender of last resort
Explanation of inflation, deflation &
hyperinflation
Negative outcomes of inflation
Positive outcomes of inflation
Recent inflation figures & goods that are
driving inflation in Ireland
3. Four functions of money
Medium of Exchange - trading and exchanging of
goods that have monetary value
Unit of Account – the comparison and value of
goods(worth)
Standard of Deferred payment – agreement of
payment (based on credit)
Store of Wealth – the fluctuation in price of a goods
value.
reference:http://www.preservearticles.com/201104115268/4-essential-
functions-ofmoney.html DateAccessed:13/11/2011
4. Monetary Policy
What Does Monetary Policy Mean?
The actions of a central bank, currency board or
other regulatory committee that determine the size
and rate of growth of the money supply, which in
turn affects interest rates. Monetary policy is
maintained through actions such as increasing the
interest rate, or changing the amount of money
banks need to keep in the vault (bank reserves).
Reference:
http://www.investopedia.com/terms/m/monetarypolic
y.asp#axzz1dtHuxPRD
5. Lender of Last Resort
A Central Banks Function as “Lender of
Last Resort” means that a country’s
Central Bank offers loans to small
commercial banks and other financial
institutions, that are experiencing difficulty
or near collapse.
Reference:
http://www.centralbanksguide.com/lender+of+last+res
ort/
6. Inflation
by inflation we mean a general rise in
prices throughout the economy.
Government policy here is to keep
inflation both low and stable.
(J.Sloman,2001, 2nd edition, Pearson
Education Limited. 'Essentials of
Economics', pp.244-245)
7. Deflation
This is where the Government deliberately
curtails aggregate demand by either
fiscal policy or monetary policy or both.
(J.Sloman,2001, 2nd edition, Pearson
Education Limited. 'Essentials of
Economics', pp. 452)
8. Hyperinflation
The costs of inflation may be relatively mild if
inflation is kept at single figures. They can be very
serious, however, if inflation gets out of hand. If
inflation develops into ‘hyperinflation’ with prices
rising perhaps by several hundred per cent or
even thousands per cent per year, the whole basis
of the economy will be undermined.
(J. Sloman, 2001, 2nd edition, Pearson Education
Limited. 'Essentials of Economics', pp.277)
11. Recent Inflation Figures
Current Rate
In October 2011 its
is reported that the
current rate of
inflation in Ireland is
at 2.85%
Source1:
http://www.tradingecono
mics.com/ireland/inflation-
cpi
12. Recent inflation figures
The Consumer Price Index (CPI) is
designed to measure the change in the
average level of prices paid for consumer
goods and services by all private
households and foreign visitors to Ireland.
The CPI is the official measure of inflation
in Ireland.
source2:
http://www.citizensinformation.ie/en/consumer_affairs/consum
er_protection/pricing/consumer_price_index.html
13. Goods that drive inflation here
in Ireland
Clothing & Footwear and Furnishings, Household Equipment
&Routine Household Maintenance rose due to a recovery in
prices following the traditional summer sales.
Housing, Water, Electricity, Gas & Other Fuels rose due to an
increase in the cost of electricity and higher mortgage interest
repayments.
Miscellaneous Goods & Services fell mainly due to a decrease
in the cost of home insurance.
Source3:
http://www.cso.ie/releasespublications/documents/prices/current/cpi.pdf
Editor's Notes
Commodities such as oil,cigarettes and petrol rise due to inflation, may lead to peoples consumption decreasing which means less money coming into the country. Standard of living decreases.Inflation is a bad thing because it decreases competitiveness within different countries. This means that exports cost more abroad and it causes a decrease in the demand for exports. Currency devaluation may improve exports although the cost to produce these product may increase which still leaves us with inflation.
Gives the government more income .Big companies such as (Tesco’s) have the money to compete with the inflation rates where as small companies such as (family owned businesses) wouldn’t have the option to sell their produce for cheaper. This would lead to a monopoly of the market. Tourists from wealthier countries who would not be deterred from coming to Ireland will spend more money than previous years. Commodities (such as petrol, alcohol and cigarettes) are ,mainly targeted by inflation, this could lower the amount of people’s consumption. This would be good for the environment and personal health.
