Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 27: Q.8 (page 662)

How does the existence of money simplify the process of buying and selling?

Short Answer

Expert verified

"Among other things, money acts as a store of value, a monthly payment norm, a means of exchange, and a unit of account."

Step by step solution

01

Concept of trading.

Money is used to buy and sell things. It is a means of exchanging products or services between two persons. Both sellers and purchasers recognize it.

02

Explanation of solution.

The usage of money is used in trading. People in a barter system trade products for goods. A farmer, for example, traded his grains for pots from a potter. As a result, there were issues with that system, which are as follows:

  • The farmer should exchange the number of grain sacks for the number of pots from the potter.
  • The potter must store the grain, and if he does so for an extended period of time, the grain may spoil.
  • If a potter wishes to purchase wood, but the seller refuses to accept grains or pots, money solves all of these issues since it allows a vendor or buyer to buy or sell anything for money. Money has four functions: it is a store of value, a deferred payment standard, a medium of exchange, and a unit of account. As a result, money simplifies the process of buying and selling.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Imagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan if:

  1. The borrower has been late on a number of loan payments
  2. Interest rates in the economy as a whole have risen since the bank made the loan
  3. The borrower is a firm that has just declared a high level of profits
  4. Interest rates in the economy as a whole have fallen since the bank made the loan

How can a bank end up with negative net worth?

Can you name some item that is a store of value, but does not serve the other functions of money?

The Bring it Home Feature discusses the use of cowrie shells as money. Although we no longer use cowrie shells as money, do you think other forms of commodity monies are possible? What role might technology play in our definition of money?

How do you calculate a bank's net worth?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free