Question

Please I want answers for these questions. Thanks

Note: I want them by typing not by hand writing

Q2

1. Explain why a market structure in which money is used as a medium of exchange is more conducive to the expansion of trade and exchange than a barter system.
2. What is money? Explain the three functions that money performs.
3. What is the relationship between money and inflation? Explain

Answer 1

A detailed solution:-

Explain why a market structure in which money is used as a medium of exchange is more conducive to the expansion of trade and exchange than a barter system.

Ans- Market structure in which money is used as a medium of exchange is more conducive to the expansion of trade than in barter system.

Money as a medium of exchange has a store of value and as a unit of account. It facilitates the sale, purchase or trading of goods. As a medium of exchange, it represents a standard of value; all buyers and sellers accept it as a standard. As a medium of exchange, it brings a greater efficiency in the economy and contributes to the expansion of trade activities.

In traditional barter system, only commodity exchange was adopted. Trade between two parties becomes possible only one party has a commodity that another party wants and vice versa. Suppose if one party possesses a horse and wants a cow in exchange. In barter system, this trade is possible only when one finds out a person who is not only having a cow but also ready to buy a horse.

This type of double coincidence of wants is very difficult and time consuming process. Another important difficulty in barter system is that there is lack of common unit in which value of goods and services are considered. There is no any fixed standard accepted by trading parties; the value of one good is to be estimated in the the quantity of another goods. All this made trading activities more difficult and there was no scope for expansion of trading activities in the Barter System.

What is money?

Ans- Money is generally accepted medium of exchange used in purchasing and selling activities which is in the form of currency notes and coins. Money is anything that many people receive for selling their own goods and services. Many countries have different kinds of money such as in USA - the dollar or the British Pound. Money is also called by another names like currency or cash.

Explain the three functions that money performs.

Ans- Functions of money are as follows:

1) Medium of exchange- This is the primary function of money. It means it can be used and accepted by all in trading activities. No commodity is required to be exchanged like barter system in the money system.

2) Store of value- Money has a store of value; it cannot be perishable. It means the thing which is perishable in nature can't be used as money.

3) Unit of account- Money is required to measure how much wealth we have or how much something costs. Money supports us to know exact market value of anything.

What is the relationship between money and inflation? Explain

Ans- The relationship between money and inflation is as follows:

1) When money supply increases at a faster rate than the real output growth, inflation increases. It means there is more money in the country but supply of goods and services are not sufficient: demand is more but supply will be less causing increase in prices of goods, resulting inflation.

2) If the money supply increases and at the same rate with the output growth, then the prices will remain stable.

{Please note, the answer is broken in parts only for student reference. One can also write this answer in a continuous form without breaking the solution content for different sub-parts.}