Money
Short Questions
1. What is a barter system?
Answer: It is the exchange of goods for goods without using money.
2. Name one major problem of the barter system.
Answer: Double coincidence of wants.
3. What is meant by double coincidence of wants?
Answer: Both parties must want what the other offers for exchange.
4. What is legal tender money?
Answer: Money backed by law that cannot be refused in transactions.
5. What is the primary function of money?
Answer: Medium of exchange.
6. What is commodity money?
Answer: Goods like shells or grains used as a medium of exchange.
7. What are token coins?
Answer: Coins with face value higher than their intrinsic value.
8. What is plastic money?
Answer: Debit and credit cards used for transactions.
9. What is black money?
Answer: Untaxed income not reported to the government.
10. What is a quality of money that allows small transactions?
Answer: Divisibility.
Long Questions
1. Explain the problem of double coincidence of wants in the barter system.
Answer: In the barter system, exchange happens only if both parties want each other’s goods. For example, if person A has cloth and wants rice, but person B has rice and wants shoes, the exchange fails. This makes trade difficult and inefficient.
2. Why was it difficult to store goods in the barter system?
Answer: Many goods, like milk or vegetables, are perishable and spoil quickly. Storing heavy or bulky goods also required a lot of space, which was challenging. This made it hard to save goods for future use.
3. What is the difference between standard coins and token coins?
Answer: Standard coins have face value equal to their intrinsic value, made of precious metals like gold. Token coins have higher face value than their intrinsic value, made of cheaper metals like nickel, and are used for smaller transactions.
4. How does money act as a measure of value?
Answer: Money expresses the price of goods and services, making it easy to compare their values. For example, a shirt may cost 500 rupees and a book 200 rupees. This helps in understanding relative worth in a common unit.
5. What is the role of money as a standard of deferred payments?
Answer: Money makes it easy to repay loans in the future, unlike the barter system where goods might perish. It acts as a standard measure for payments to be made later, simplifying borrowing and lending.
6. Explain the evolution from commodity money to metallic money.
Answer: Commodity money, like shells or grains, was used but faced storage issues. Metallic money, made of durable metals like gold or silver, replaced it because metals were easier to store, carry, and lasted longer.
7. What are the qualities of good money?
Answer: Good money should be generally acceptable, divisible, durable, portable, recognizable, homogeneous, and stable in value. These qualities ensure money is practical for transactions and retains its worth over time.
8. How does money help in transferring value?
Answer: Money allows people to sell assets like land or buildings in one place and use the money to buy assets elsewhere. This makes it easy to transfer value across locations without physically moving goods.
9. What is electronic money, and how is it used?
Answer: Electronic money is a monetary value stored and transferred via devices like mobile phones or computers. It is used for online purchases or transactions through digital wallets, making payments fast and convenient.
10. Why is black money harmful to the economy?
Answer: Black money is untaxed income that encourages illegal activities like corruption and black marketing. It creates economic, political, and social instability, slowing down development. Demonetization is used to control it.
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