Question

WRITE A 75 WORD RESPONSE

"An engine cannot run without oil. In the absence of money there were great difficulties in exchanging goods and services. This worked as an obstacle to the division of labor and specialization among various individuals and nations. By opening up the opportunities of effecting division of labor and through facilitating exchange and trade of goods and services money contributes to the expansion of production. Therefore, money enables the increase in the amount of production and variety of goods and services produced. So, if the modern economy is deprived of the money and relegated back to the barter system then the level of output would be much lower and the variety of goods and services much smaller than is enjoyed with a money system. Apart from this, money promotes savings because it is easier to save in terms of money than in terms of goods under the barter system. Thus money contributes towards the increase in saving and increase in saving leads to the increase in investment which determines the economic growth of the country. Thus, money lubricates the economy and helps in its optimum performance in terms of expansion and growth just as oil does an engine."

Answer 1

The present form of paper money or legal tender currency has large benefits . From ease of exchange of goods and services to division of labor and trade all have been facilitated due to money . Money supply affects production levels in an economy . The many drawbacks of barter such as double coincidence of wants , perishable money , difficulty in establishing standard exchange rate etc have all been removed by money . Money promotes store of value and ease of exchange unlike barter . This store of value through exchange facilitates future growth of the economy .