State with reasons whether you agree or disagree with the following statements
1) There are no difficulties in barter system.
Ans:- No, I do not agree with this statement.
Lack of common measure of value : While exchanging goods for goods, there was no standard unit of account to determine the value of a commodity. e.g., it was difficult to compare two liters of milk with two kilograms of rice.
Problem of double coincidence of wants : Lack of double co-incidence of wants was one of the major limitations of barter system. For instance, person ‘A’ has cloth and he wants rice in exchange and person ‘B’ has rice but he does not want cloth in exchange. In this case exchange between ‘A’ and ‘B’ would not take place as their wants do not coincide with each other.
Indivisibility of certain goods : In barter system it was inconvenient to divide animals, house etc. into small parts, so it was difficult to fix proportion of one commodity in exchange for another commodity, e.g. Individual ‘A’ has a sack of wheat and he wants a goat in exchange. Individual ‘B’ has a goat and he wants only half a sack of wheat. In this situation exchange between the two commodities is impossible due to indivisible nature of goat, for it being a live stock.
Difficulties in storage of goods : It is necessary to store goods for future consumption. Sometimes due to perishable nature of certain goods it was difficult to store them for future. Perishable commodities like milk, eggs, fish, vegetable etc. were difficult to store. Difficulties were also experienced due to lack of space required to store heavy and bulky goods.
Problem of making deferred payments : Deferred payment means payments to be made in future. Repayment of loan was difficult due to exchange of commodities, E.g. it was difficult to repay the perishable goods in the same condition in future
2) There are many good qualities found in modern currency.
Ans:- Yes, I agree with this statement.
Definitions of Money:
1. Prof Crowther” Money is anything that is generally acceptable as a means of exchange and at the same time gets as a measure and a store of value”.
2. Prof Walker: “Money is what money does”.
The qualities of money are as follows:
1. General Acceptability: Anything which is used as money must be easily accepted by all for exchange purpose.
2. Divisibility: Money should be easily divisible into smaller denominations to facilitate small transactions.
3. Durability : Money should also possess the characteristic of durability. Currency notes and coins are being used repeatedly and shall continue to do so for years together on account of durability.
‘ 4. Cognizability : Money must be easily recognised. It should have certain distinct marks so as to avoid confusion by the receiving person.
5. Portability : It should be easy to carry from one place to another without any difficulty, expense and inconvenience, e.g. currency notes are easily portable.
6. Homogeneity : Money of a particular denomination must be homogeneous or identical in its features.
7. Stability : Money should have (1 stable monetary value. It serves as a measure of value to exchange goods and services. These goods can be sold and purchased in future as per requirements.
3) Many tasks are accomplished by money.
Ans:- Yes, I agree with this statement. Reasons:-
1. Primary Functions of money : Money performs primary functions as a medium of exchange and a measure of value.
2. Secondary functions of money : It performs secondary functions of standard of deferred payments, store of value and transfer of value.
3. Contingent functions of money : It also performs contingent functions of estimating and dividing national income, providing basis of credit, imparting liquidity to wealth and estimating macroeconomic variables.
4) Money can be sent anywhere through elecrtonic means.
Ans:- Yes, I agree with this statement.
1. Plastic Money: Plastic Money is easy to use in transactions due to advanced technology. Debit cards and credit cards are used as plastic money. Further innovation in smart transactions led to the introduction of electronic money.
2. Electronic Money: E-money or Electronic money is a monetary value that is stored and transferred electronically through a variety of means i.e. mobile phone, tablet. Smart card computer etc. It is backed by Central Bank.
3. Digital wallets: Electronic money used for purchases and transactions globally. Digital wallets are also a form of stored electronic money.