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  • Money and Banking: Lack of Store of Value

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    The document discusses some of the limitations of a barter system, including: 1) Lack of a common unit of account, as the value of goods and services needs to be expressed in terms of other goods rather than a single, standardized unit. 2) Absence of a store of value, as specific commodities stored may lose value over time due to damage or changing market conditions. 3) Inability to facilitate deferred or future payments for things like wages, rent, and interest, due to issues agreeing on what commodity will be exchanged and risks from commodity value fluctuations before payment is due.

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    banking

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    Money and Banking

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    The document discusses some of the limitations of a barter system, including: 1) Lack of a common unit of account, as the value of goods and services needs to be expressed in terms of other goods rather than a single, standardized unit. 2) Absence of a store of value, as specific commodities stored may lose value over time due to damage or changing market conditions. 3) Inability to facilitate deferred or future payments for things like wages, rent, and interest, due to issues agreeing on what commodity will be exchanged and risks from commodity value fluctuations before payment is due.

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    41 views2 pages

    Money and Banking: Lack of Store of Value

    Uploaded by

    dher1234
    The document discusses some of the limitations of a barter system, including: 1) Lack of a common unit of account, as the value of goods and services needs to be expressed in terms of other goods rather than a single, standardized unit. 2) Absence of a store of value, as specific commodities stored may lose value over time due to damage or changing market conditions. 3) Inability to facilitate deferred or future payments for things like wages, rent, and interest, due to issues agreeing on what commodity will be exchanged and risks from commodity value fluctuations before payment is due.

    Copyright:

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    of 2

    MONEY AND BANKING

    (8 MARKS 1 MARKS 2 QUES. 6 MARKS 1QUES)

    Barter system involves the system of trading or exchange where goods and services are exchanged
    with other goods and services.
    For eg. A producer of rice can purchase cloth by exchanging rice from a producer who produces cloth.
    Also known as C-C Economy (commodity for commodity exchanged economy).

    For Eg. If you want to sell your horse you have to express its value. 1 horse = 2cows, 1horse = 20kg iron

    2.

    3. Lack of store of value: There is lack of any good method to store the generalized purchasing
    power or wealth. People can store wealth in terms of specific commodities. The stored commodities
    may lose its value due to damage with passage of time. Moreover, the method of storing goods is
    somewhat expensive.
    4. Problem of deferred or future payments: Agreements relating to payments of wages, rent, interest,
    salaries etc extend over a period of time. These payments have to be made in future. Barter system
    is unable to undertake such transactions. The reason are controversy regarding the quality of goods
    and services accepted for payment; disapproval in regard to exchange of specified commodity and
    risk involved in the contract due to fall or rise of value of commodity accepted for payment.

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