What is money? (a) How are bond prices related to the real rate of interest r? Explain with an example

2) Money is any object that is generally accepted as payment for goods and services. So it is the medium of exchange for transactional purposes.

a) Bonds have an inverse relationship to interest rates. When the interest rate rises, bond prices usually fall and when the interest rate falls, the bond prices rise.

b) Increase in GDP will raise the demand fomoney. And in decrease in GDP will fall the demand for money.

Increase in real GDP will results an increase in average interest rates in an economy.

c) No, Credit card is not considered as money. It is a short term loan from the Credit card company. When we pay through credit card bill, we are borrowing money from the credit card company.

d) Commercial banks make money by earning interest from loans such as business loans, personal loans, mortgages etc. State Bank of India, Corporation Bank, Dena Bank etc. are examples of commercial banks in India.

A Money Multiplier is the ratios of commercial bank money to central bank money under a fractional-reserve banking system. In other words, the money multiplier is the amount of money that banks generate with each dollar of reserves.