Question

- A news article in 2015 noted, ‘A rising number of Greeks in rural areas are swapping goods and services in cashless transactions since the government shut down banks on June 28 for three weeks’ (Karagiannopoulos, 2015). If Greeks were able to swap goods and services for other goods and services, did it matter that currency was not available because the banks had been closed? Briefly explain

- Explain why Australia’s currency is suitable to use as a medium of exchange

Answer 1

1) If Greeks are able to swap goods and services for goods and services, then it would be a case of double coincidence of wants.

Yes, it does matter that currency is not used as a medium of exchange because goods would be valued in terms of money which makes transaction easier, it is portable and divisible.

In case of goods and services, the first important aspect would be the fact that the goods would be exchanged only when both the people trading them require the other good ie double coincidence of wants. This requires sufficient time and energy and transportation cost or the searching costs . This would make the transaction less effective than had the exchange being done with money.

2) Australia's currency is suitable to use as a medium of exchange because it has the following characteristics:

It is a legal tender and is accepted because people know that everyone else in Australia is also accepting it as form of money.

It is easy to carry, is divisible, has no transportation cost etc.

Its value remains constant ie unlike goods ,it has longevity. It is not perishable unlike fruits and vegetables.

The goods and services could be measured in terms of the currency.

There is no double coincidence of wants and hence the time and value to buy and sell goods is saved.

So because of these reasons the Australian currency would be a medium of exchange.

(You can comment for doubts)