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Describe how money contributes to economic activity and allows for a more complex society than barter does
Describe how money contributes to economic activity and allows for a more complex society than barter does. [LO 15.1]
Expert Solution
Barter system is the system where participants transacts directly exchange good and services for other good and services .But the barter system has many drawbacks like lack of double coincidence of wants, lack of common measure of value, difficulty in deferred payments and storing value. If a person want to buy wheat by exchanging rice , he has to wait till he find a person who is ready to exchange wheat for rice. Existence of barter system is impossible in modern complex society
Money contributes to economic activity and allow for more complex society than barter does because of its characteristics
1. *Medium of exchange* ; Money performs a functions as medium of exchange We can purchase good and services according to the value of money. Value of money must remain stable over time . Money acts a an intermediary between buyer and seller
2. *Unit of account*; Money perform a function as unit of account. A unit of account means that can be used to buy good and services , record debts and make calculations. Money can be divisible and countable. It can account for profit ,losses income salary ,wealth etc
3. *Store of value* : Money can be saved , retrieved and can be exchange in future . Because it is highly liquid , and it can easily exchanged for other good and services
4. *Standard of deferred* payments : As function, money can widely accepted way to value debt and there it can be allowed to buy good and services currently and pay in future
Being medium of exchange , unit of account, store of value, and standard of deferred payments, money contributes to all economy activity and allows for more complex society than barter does
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