Question

Explain exactly how the use of money - as opposed to barter - is able to increase productivity in an economy. Your answer should specifically address the way in which money may be expected to alter the pattern of production in an economy and why.

Answer 1

Money is classified as the exchange medium that separates the selling and purchase act that is easily stored and transferred from one place to another. The barter exchange network is a network of exchanges where commodities are traded for commodities. No double coincidence of the desires needed as in the case of a double coincidence of a desire for trade. We can calculate the value of each and every good in terms of money, but this was not possible in the barter system

Value store; in practice, storing money with the banking system is very convenient, but storing goods was not convenient because it raises the cost of maintenance. Transfer of value; we can quickly move money from one location to another, this was not the case in practice when the barter system was Normal for deferred payment: we can purchase goods now and pay for them later, but that was not the case in the barter system because the trade takes place concurrently.

The bigger problem of the barter method is to decide if the person that you are trading with is trust worthy. Where as, such a problem does not have to be faced by means of capital. The goods and services you trade for faulty and defective products can be traded in the barter system. Whereas, you only pay money when the goods and services that you purchase are of good quality and worth buying. Double-coincidence of wanting is necessary in the barter method. Where as, nothing as such is required in money. Around the same time, the goods have to be traded in the barter scheme. Where you have an choice, as in finance, to buy products and services now, and pay money later.