Question

5 In 2009, a digital currency called Bitcoin was invented. Between 2009 and 2014 there was a
growth in the number of people and firms accepting it as a medium of exchange and store of
value. Financial experts have called for digital money to be regulated by central banks. One of their
concerns is that it could increase the money supply and cause inflation.
(a) Define ‘medium of exchange’. [2]
(b) Explain two ways in which a central bank differs from a commercial bank. [4]
(c) Analyse how an increase in the money supply may cause inflation and a fall in saving. [6]
(d) Discuss whether price stability should be a government’s main economic aim. [8]

Answer 1

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