Money

1.      Why do people accept money?

People accept money not to consume it directly but because it directly but because it can subsequently be used to buy things we do wish to consume. Money is the medium through which people exchange goods and service.

2.      How are goods exchanged in a barter economy?

In a barter economy, the seller and the buyer each must want something the other has to offer. Each person is simultaneously a seller and a buyer. Example, in order to see a film, you must hand over in exchange a good or service that the cinema maneger wants. There has to be a double coincidence of wants. You have to find a cinema where the manager wants what you have to offer in exchange.

3.      Why is trading expensive in a barter economy?

Trading is a very expensive in a barter economy because people must spend a lot of time and effort finding others with whom they can make mutually satisfactory swaps. Since time and effort are scarce resources, a barter economy is wasteful. The use of money-any commodity generally accepted in payment for goods,service, and debts- makes the trading process simpler and more efficient.

4.      What is the unit of account in your country?

The unit of account is the unit in which prices are quoted and accounts are kept. In my country the unit of account is rupiah.

5.      When did Germany not use its own currency?

During the rapid German Inflations of 1922-1923 when prices in marks were changing very quickly, German shopkeepers found it more convenient to use dollars as the unit of account. Prices were quoted in dollars even though payment was made in marks, the German medium of exchange.

6.      What else does the writer say can be used instead of money as a store value?

To be accepted in exchange, money has to be a store of value. Nobody would accept money as payment for goods supplied today if the money was going to be worthless when they tried to buy goods with it tomorrow. But money is neither the only necessarily the best store of value. Houses, stamp collections, and interest bearing bank accounts all serve as store of value. Since money pays no interest and its real purchasing power is eroded by inflation, there are almost certainly better way to store value.

7.      What does the writer mean by “standard of deferred account”?

Finally, money serves as a standard of deferred payment or a unit of account over time. When you borrow, the amount to be repaid next year is measured in poundsterling. Although convenient, this is not essential function of money. UK citizens can get bank loans specifying in dollars the amount that must be repaid next year. Thus the key feature of money is its use as a medium of exchange. For this, it must act as a store of value as well. And it is usually, though not invariably, convenient to make money the unit of account and standard of deferred payment as well.

8.      Mention the function of the money.

-As a medium of exchange to facilitate transactions

     -A measure of value

    -A store of value

    -And a standard of deferred payments.

9.      What is the main idea of the last paragraph ?

“Finally, money serves as a standard of deffered payment or a unit of account over time.