Question

 

1. Describe the functions of money.

2. What is fiat money? What is commodity money?

 

Answer 1

question 1

Function of money :-

• Medium of exchange -  something which can be exchange and it can provide you value because it is provide you capacity to buy something such as certain type of goods which you needs.
• Relative price of commodity - it helps you the relative price of commodity. this was not possible when money was not be used.
• Measure of value it help you to measure of value. If we have to sell something so now its easier to me because i can put price. so thats how we can measure some commodity.
• Facility of store - In Barter system we couldn't store goods. they used to get spoiled. Even we didn't required it and if we barted then it was like problem of storing them. Money can be easily stored in the house.
• Standard of deferred payment - Earlier it was not possible to provide loans or do something like that because there was Barter system in place. So now money is there, so its become medium through which future payment are regulated.
• Transfer of value - With money, we can transfer any amount to the other party. So that is transfer of value which the money have.

Question 2

- Fiat Money - its completely based on our faith. so the government tells you that thats is money, so if you look at any dollar bill or five-dollar, it will say that bill must be accepted to satisfy all debts. So the government is essentially telling us thats its good we have faith n the government we have faith in that money.

Commodity money - commodity money has value as a good in addition to its value of money. so basically anything you would like to use for something other than money it could be commodity money. for example- Good, Jwellery, shells, arrowheads.

So for some reason we didn't want to use that as come as money anymore it would still have value as a commodity.