Q. 25

Explain the 'medium of exchange' function of money. How has it solved the related problem created by barter?

OR

Explain the 'standard of deferred payment' function of money. How has it solved the related problem created by barter?

Answer :

● Money is a medium of exchange of goods and services.


● It helps to facilitate transactions between the buyer and the seller.


● The buyer sells the goods in return for money from the buyer.


● The major issue in the barter system was the double coincidence of wants.


● It was absolutely necessary that both the parties involved must have the good that the other wants.


● Money has solved this concern as now goods can be exchanged for money.


OR


● Deferred payments mean the postponed payment which is to be made in future.


● This is in case of any borrowing or lending activity.


● Barter system suffered from the problem of lack of standard of deferred payment, as goods especially which were perishable in nature could not be held for long.


● So, the money helped to solve the lack of financial institutions issue in the barter system.


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