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Questions and Answers
What is the main difficulty of the barter system?
What is the main difficulty of the barter system?
- Inability to store value
- Excessive transaction costs
- Lack of double coincidence of wants (correct)
- Limited unit of account
What are the three main uses (functions) of money?
What are the three main uses (functions) of money?
- Medium of exchange, unit of production, store of value
- Medium of exchange, unit of account, store of value (correct)
- Medium of exchange, unit of account, standard of deferred payments
- Medium of production, unit of account, store of value
What is the meaning of money?
What is the meaning of money?
- Unit of value, medium of production, means of exchange
- Medium of exchange, unit of account, means of payment (correct)
- Medium of production, unit of exchange, store of value
- Unit of account, store of production, means of exchange
What is necessary for money to be useful regardless of its form?
What is necessary for money to be useful regardless of its form?
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What is the direct exchange of goods for goods called?
What is the direct exchange of goods for goods called?
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Study Notes
Barter System and Money
- The main difficulty of the barter system is the lack of a double coincidence of wants, meaning that both parties must have what the other wants at the same time.
- The direct exchange of goods for goods is called barter.
Functions of Money
- The three main uses (functions) of money are:
- Medium of exchange: money enables the exchange of goods and services
- Unit of account: money provides a standard unit of value for goods and services
- Store of value: money allows individuals to save for the future
Definition and Characteristics of Money
- The meaning of money is the widely accepted medium of exchange, unit of account, and store of value in an economy.
- For money to be useful regardless of its form, it must be:
- Portable: easy to transport
- Divisible: able to be divided into smaller units
- Durable: able to withstand wear and tear
- Acceptable: widely accepted as a medium of exchange
- Stable: maintains its value over time
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