Question

Justify the following statements with valid arguments:
(i) Money supply in an economy is an example of a stock variable.
(ii) The Central Bank provides several Banking services to the government.

Hint:

Stock variables are measured at a point in time, while flow variables are measured over a period. Understanding the difference helps in analyzing economic data effectively.

Answer 1

1. Money supply in an economy is an example of a stock variable: Money supply is considered a stock variable because it refers to the total amount of money available in the economy at a particular point in time. Unlike flow variables, which measure economic activity over a period of time (like income or expenditure), stock variables are measured at a specific moment and do not change with time unless there is an external influence, such as changes in the central bank's policy.
2. The Central Bank provides several Banking services to the government: The Central Bank acts as the banker to the government and provides essential banking services such as managing government accounts, issuing and managing government securities, handling public debt, and facilitating government payments and receipts. These services ensure the smooth functioning of government financial operations.