Question

Answer each of the following questions in a paragraph.
What are the difficulties of Barter system of exchange? How has money solved these problems?

Answer 1

Barter system was a system of exchange where goods were exchanged for goods and there was no common medium of exchange in the economy. Barter system had many drawbacks like lack of double coincidence of wants, lack of a common unit of value, difficulty of future payments or contractual payments and difficulty of storage of value and transfer of value.

Money refers to a common medium of exchange that is issued under the law of government and acts as a legal tender for the whole country. The various functions performed by money that solved the problems of barter system of exchange are :-

1. Common medium of exchange

2. Store of value

3. Common measure unit

4. Serve as the standard of deferred payments.