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Unit notes and practice questions

Grade 9 Economics unit 6: Introduction to Money

Everything here is for unit 6 of the Grade 9 Economics textbook: what the chapter covers, the short notes, practice questions with their answers, and the lesson video where one exists.

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5
Cards
10
Practice questions on unit 6
77–92
The textbook pages for unit 6

What unit 6 covers

  1. 1.Definition of Money
  2. 2.Evolution of Money
  3. 3.Functions of Money
  4. 4.Demand and Supply of Money
  5. 5.Money and Electronic Banking

Short notes for unit 6

The cards filed under this chapter on the Grade 9 Economics page. Open one at a time.

ComponentConstituentsDeductions
Currency with the publicCurrency notes in circulation, birr notes and coins, small coinsCash in hand with banks
Deposit money with the publicBank balances held in current accounts (chequable deposits)None
Total Money SupplyCurrency with the public + Deposit money with the publicNone

When you use it

Use when evaluating the total stock of money in an economy or determining currency with the public.

Watch out

Cash in hand with banks must be deducted from total currency circulation to get currency with the public.

Drafted from Grade 9 Economics, pages 77-92, then checked twice before it went up

CriterionRequirement
StandardizationMust be easily standardized to make value ascertainment simple
AcceptabilityMust be widely accepted as a medium of economic exchange
DivisibilityMust be divisible so that it is easy to make change
PortabilityMust be light and easy to carry around
DurabilityMust not degrade or deteriorate quickly over time

When you use it

Use when identifying the physical and economic properties a commodity must possess to serve as money.

Watch out

A commodity must satisfy all five criteria simultaneously to function effectively as money.

Drafted from Grade 9 Economics, pages 77-92, then checked twice before it went up

FunctionEconomic Role
Medium of exchangeEliminates double coincidence of wants, lowers transaction costs
Unit of accountMeasures and expresses the value of goods and services
Store of valueTransfers purchasing power from the present to the future
Standard of deferred paymentsFacilitates lending, borrowing, and settling future payments

When you use it

Use when analyzing how money operates in an economy or differentiating its primary roles.

Watch out

Money is not unique as a store of value since assets like land or bonds also store value, but money has the highest liquidity.

Drafted from Grade 9 Economics, pages 77-92, then checked twice before it went up

MotiveMain PurposeKey Determinant
Income motive (Transaction)To bridge the gap between receipt of income and daily expenditureIncome level and payment frequency
Business motive (Transaction)To pay for wages, materials, and current operating costsVolume of business turnover
Precautionary motiveTo hold cash balances for unforeseen risks and contingenciesIndividual nature and living conditions
Speculative motiveTo take advantage of future changes in interest rates and bond pricesExpected market interest rates

When you use it

Use when describing liquidity preference or explaining why individuals and firms hold cash balances.

Watch out

The transaction motive consists of two distinct components: the income motive for households and the business motive for firms.

Drafted from Grade 9 Economics, pages 77-92, then checked twice before it went up

LimitationDescription
Lack of double coincidence of wantsRequires finding a partner who wants what you have and has what you want
Lack of a common measure of valueAbsence of a common standard to determine exchange ratios between goods
Indivisibility of commoditiesCertain goods lose value or identity when divided to make an exchange
Difficulty in storing and transferring wealthGoods deteriorate over time, incur high storage costs, or are costly to transport
Difficulty in deferred paymentsFuture payments in goods are hindered by price instability and quality variation

When you use it

Use when explaining why direct exchange of goods fails and why monetary systems emerged.

Watch out

Do not confuse indivisibility of goods with difficulty in storing wealth.

Drafted from Grade 9 Economics, pages 77-92, then checked twice before it went up

Practice questions on unit 6

10 multiple-choice questions written against this chapter, each with its answer and the reason. Try one before you open the answer.

Question 1

Which criterion of money requires that a commodity should not break down or degrade quickly over time?

  1. A.Durability
  2. B.Portability
  3. C.Divisibility
  4. D.Standardization
Show the answer and why

Answer: A Durability

Why

Durability means that the commodity used as money should not degrade or spoil quickly, allowing it to be used repeatedly.

Question 2

What is the direct exchange of goods for goods without using money called?

  1. A.Fiat exchange
  2. B.Barter system
  3. C.Electronic payment
  4. D.Monetary transaction
Show the answer and why

Answer: B Barter system

Why

The barter system is an economic system where goods are directly exchanged for other goods without the mediation of money.

Question 3

When a shopkeeper in Merkato sets the price of a sack of teff at 8,000 birr, which function of money is being demonstrated?

  1. A.Store of value
  2. B.Unit of account
  3. C.Precautionary holding
  4. D.Standard of deferred payment
Show the answer and why

Answer: B Unit of account

Why

As a unit of account, money is used to measure and express the value or price of goods and services in the economy.

Question 4

According to John Maynard Keynes, holding money to provide for unforeseen emergencies like sickness or accidents is called the:

  1. A.Precautionary motive
  2. B.Speculative motive
  3. C.Income motive
  4. D.Business motive
Show the answer and why

Answer: A Precautionary motive

Why

The precautionary motive refers to holding cash balances to protect against unexpected events and contingencies like illness or job loss.

Question 5

In what year was paper money issued in Ethiopia for the first time by the Bank of Abyssinia?

  1. A.1893
  2. B.1914
  3. C.1932
  4. D.1945
Show the answer and why

Answer: B 1914

Why

Paper money was first issued in Ethiopia in 1914 by the Bank of Abyssinia, although it was unfamiliar and struggled to gain wide public acceptance at that time.

Question 6

What is fiat money?

  1. A.Paper currency decreed by government as legal tender that is not convertible into precious metal
  2. B.Commodity money made entirely of gold and silver bars
  3. C.Traditional commodity money such as salt bars and beads
  4. D.Money that is always 100 percent backed by gold deposits
Show the answer and why

Answer: A Paper currency decreed by government as legal tender that is not convertible into precious metal

Why

Fiat money is paper currency decreed by the government as legal tender for paying debts, but it cannot be converted into coins or precious metals on demand.

Question 7

A person wants to exchange a live horse for a pair of shoes under a barter system. Since the horse cannot be divided without killing it, trade fails. Which limitation of barter does this show?

  1. A.Lack of double coincidence of wants
  2. B.Indivisibility of commodities
  3. C.Difficulty in deferred payments
  4. D.High cost of electronic transfer
Show the answer and why

Answer: B Indivisibility of commodities

Why

This is the problem of indivisibility of commodities. Some goods cannot be divided into smaller parts without losing their identity and total value.

Question 8

Which function of money makes it possible for people to buy goods on credit now and settle the debt at a future date?

  1. A.Standard of deferred payments
  2. B.Unit of account
  3. C.Store of value
  4. D.Medium of exchange
Show the answer and why

Answer: A Standard of deferred payments

Why

Money functions as a standard of deferred payments by allowing contracts where goods are bought today and paid for in the future.

Question 9

According to official records, the Axumite kingdom began minting its own coins in the third century A.D. during the reign of which kings?

  1. A.King Menelik II and Emperor Haileselassie
  2. B.King Endybis and King Aphilas
  3. C.King Ezana and King Kaleb
  4. D.King Lalibela and King Tewodros
Show the answer and why

Answer: B King Endybis and King Aphilas

Why

Official records show that the Axumite kingdom began using its own coins in the third century A.D. during the reign of King Endybis and Aphilas.

Question 10

In Keynesian economics, the speculative motive for holding cash balances is mainly related to:

  1. A.Covering daily household food and transport costs
  2. B.Meeting regular business operating expenses and wages
  3. C.Taking advantage of future changes in interest rates or bond prices
  4. D.Preparing for unexpected job loss or sickness
Show the answer and why

Answer: C Taking advantage of future changes in interest rates or bond prices

Why

The speculative motive relates to holding liquid resources to take advantage of expected market movements regarding future changes in interest rates or bond prices.

The app holds 12 questions on this unit, marked as you go. These are the first 10.

The textbook pages for unit 6

Unit 6 runs from page 77 to page 92 of the Ministry of Education edition.

Ministry of Education edition, English, 130 pages

Download the PDF

All Grade 9 Economics short notes

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