Question

Let A be a builder, B a shoemaker, C a house, D a shoe. The builder, then, must get from the shoemaker the latter's work, and must himself give him in return his own. If, then, first there is proportionate equality of goods, and then reciprocal action takes place, the result we mention will be effected. If not, the bargain is not equal, and does not hold; for there is nothing to prevent the work of the one being better than that of the other; they must therefore be equated. (And this is true of the other arts also; for they would have been destroyed if what the patient suffered had not been just what the agent did, and of the same amount and kind.) For it is not two doctors that associate for exchange, but a doctor and a farmer, or in general people who are different and unequal; but these must be equated. This is why all things that are exchanged must be somehow comparable. It is for this end that money has been introduced, and it becomes in a sense an intermediate; for it measures all things, and therefore the excess and the defect-how many shoes are equal to a house or to a given amount of food. The number of shoes exchanged for a house (or for a given amount of food) must therefore correspond to the ratio of builder to shoemaker. For if this be not so, there will be no exchange and no intercourse. And this proportion will not be effected unless the goods are somehow equal. All goods must therefore be measured by some one thing, as we said before. (Aristotle Nicomachean Ethics Book V. What two functions of money is Aristotle describing in this passage? [Select two answers]. Unit of Account, Store of Value, Medium of Exchange, Liquidity. Initially, 20,000 pairs of shoes can buy one house. Additionally, the price of one pair of shoes $50. What is the price of one house? $500,000, $1,000,000, $10,000,000, $5,000,000. Suppose the central bank increases the money supply. After the action by the central bank, the price of a pair of shoes is now $75. What is the price of one house? $1,500,000, $3,000,000, $15,000,000, Not enough information. Based on your answers above, what is the theory that explains the relationship between the price of a pair shoes and the price of a house?

Answer 1

Ans- 1 Functions of money explained in this passage .

1. Medium of exchange - as it is said that pairs of shoes should be exchanged for a house and there should be a ratio of builder to shoe maker. So money acts as medium of exchanges. shoes will be exchanged for money and then that money for house.

2. Unit of account - there is a line in a passage says that all goods must therefore be measured by some one thing. It is explaining that money act as unit of account . all goods are measured in money.

Ans - 2 one house can be bought for 20000 pair of shoes . Price of 1 pair of shoes is $50. So, price of one house is 20000×price of shoes =20000×50= $1000000 , option b is correct.

Ans-3 After the increase in money supply price of shoes increased to $75 due to this price of house also increase. Now the price of house is 20000×75= $1500000 option a is correct.

Ans- 4 Quantity theroy of money explains this relationship. It explains that others things being constant prices are directly proportional to the money supply. As supply increases price of goods increases.