Question

The first DB question this week is twofold. First of all discuss why the standard of living is likely to be higher in a money economy than in a barter economy. Secondly, discuss whether not credit cards qualify as money in our economy

Answer 1

STANDARD OF LIVING IS HIGHER IN MONEY ECONOMY THAN IN BARTER ECONOMY BECAUSE:-

1. MONEY IS A MEDIUM OF EXCHANGE THAT IS READILY ACCEPTED TO FULFILL DEMANDS AND ACHEVE SATISFACTION AT THE POINT IN TIME ITSELF WHILE IN BARTER SYSTEM ONE HAS TO FIND THE PERSON WHO IS READY TO BARTER FOR THE PRODUCT THAT EACH PARTY WANTS.
2. IN BARTER SYSTEM, ONE HAS TO BARTER ON THE VALUE OF THE COMMODITY ITSELF BUT MONEY HAS A FIXED VALUE ATTACHED WITH IT THAT DOESNT NEED TO BE BARTERED UPON
3. STANDARD OF LIVING CAN BE LINKED WITH THE PRODUCTIVITY ITSELF AND MONEY, MONEY SUPPLY AND MONETARY INSTRUMENTS ARE A BETTER BENCHMARK FOR ECONOMIC GROWTH AND INCOME GROWTH IN THE ECONOMY THAN BARTER SYSTEM
4. MONEY MULTIPLIER EFFECT LEADS TO CREATION OF INCOME, OUTPUT AND EMPLOYMENT FOR PEOPLE AND BARTER SYSTEM DOES NO SUCH FUNCTION.
5. MONEY INVESTED GETS MULTIPLIED THROUGH THE INVESTMENT MULTIPLIER MECHANISM WHICH ALSO GENERATES OUTPUT AND EMPLOYMENT OPPORTUNITIES RAISING THE STANDARD OF LIVING
6. GOVERNMENT CAN REGULATE THE PRICES OF NECESSITIES AND REGULATE THE SUPPLY OF MONEY TO REGULATE CONDITIONS LIKE INFLATION AND DEFLATION ITSELF.
7. BARTER SYSTEM IS AN OUTDATED METHOD WHICH GENERATES NO INCOME AND THE THINGS BARTERED USUALLY HAVE A SHELF LIFE WHILE THERE IS NO SUCH CONDITIONS IN THE MONEY ECONOMY.

DO CREDITS QUALIFY AS MONEY?

NO. Credit cards don't qualify as money and are neither part of M1 (currency held by public) or M2 ( net demand deposits held by commercial banks) in the money supply of the economy. they are just monetary instruments where when a transaction is made, it leads to creation of loans from the credit card issuing company which is to be repaid after a certain period of time which are governed by the terms and conditions of the lender itself. the amount used is not money but a liability to be repaid later together with some interest.