WASSCE SHS
Money is anything generally accepted in payment. Inflation is a persistent rise in the general price level, not a rise in one price.
Money serves as a medium of exchange, a store of value, a unit of account and a standard of deferred payment. The medium of exchange is the one that replaced barter: you sell your good for money and buy what you want, without needing a double coincidence of wants. A store of value lets you hold purchasing power over time, which fails when inflation is rapid, because the same notes buy less later. That link is why the two topics sit together.
Inflation is a sustained rise in the general level of prices. One good becoming dearer is not inflation. Demand pull inflation is associated with spending growing faster than output. Cost push inflation is associated with rising costs of production, such as wages or imported inputs, passed on in prices. The effects candidates are expected to explain include a fall in the value of money, pressure on people with fixed incomes, and dearer exports. Do not quote a rate. The mechanism is the answer.
Four functions, and the names matter. "You can buy things" is the medium of exchange, but use the term if you know it. Inflation must be general and persistent. A one off rise in the price of yam after a poor season is not, by itself, the definition. Demand pull and cost push need a sentence each, not only the labels. Effects should name who loses.
These are practice questions in the style of the paper, with a model answer and a mark scheme. They are not a promise of what your paper will ask.
3 marks
State three functions of money. (3 marks)
A medium of exchange, a store of value, and a unit of account.
4 marks
(a) Define inflation. (2 marks)
(b) Distinguish demand pull inflation from cost push inflation. (2 marks)
(a) A persistent rise in the general price level.
(b) Demand pull comes from total spending rising faster than output. Cost push comes from higher costs of production being passed on as higher prices.
2 marks
Explain one way inflation harms a person whose income is fixed. (2 marks)
The same income buys fewer goods. The person's real income falls even though the notes in their hand have not changed.
More questions on this topic are inside GLearn, marked as you answer, with the reason written out. The first ones need no account.
Practise Economics freeA persistent rise in the general price level. It is not a rise in a single price. Demand pull is linked to spending outrunning output. Cost push is linked to higher costs being passed on. The result is that money buys less.
Barter needs each person to want what the other has, at the same time. Money splits the sale from the purchase. You accept money because other people will accept it, which is what "generally accepted" means. All WASSCE Economics past questions