Question

Give the meaning of:
(i) Barter Exchange;
(ii) Money;
(iii) Money Supply.

Answer 1

(i) Barter Exchange: 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.

(ii) Money : 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 are

1. Common medium of exchange

2. Store of value

3. Common measure unit

4. Serve as the standard of deferred payments

(iii) Money supply : Money supply refers to the total stock of money of all types ( currency as well as demand deposits) held by the people of a country at a given point of time.

Money supply is measured in several ways which includes M1, M2, M3 and M4 measurement of money supply. Every measurement has it own definition with different components varying from most liquid to most rigid form.