what is Bank rate in 10th class ncrt
Answers
Money is the commonly accepted medium of exchange. In an
economy which consists of only one individual there cannot be
any exchange of commodities and hence there is no role for
money. Even if there are more than one individual but they do
not take part in market transactions, such as a family living on
an isolated island, money has no function for them. However, as
soon as there are more than one economic agent who engage
themselves in transactions through the market, money becomes
an important instrument for facilitating these exchanges.
Economic exchanges without the mediation of money are referred
to as barter exchanges. However, they presume the rather
improbable double coincidence of wants. Consider, for example,
an individual who has a surplus of rice which she wishes to
exchange for clothing. If she is not lucky enough she may not be
able to find another person who has the diametrically opposite
demand for rice with a surplus of clothing to offer in exchange.
The search costs may become prohibitive as the number of
individuals increases. Thus, to smoothen the transaction, an
intermediate good is necessary which is acceptable to both
parties. Such a good is called money. The individuals can then
sell their produces for money and use this money to purchase
the commodities they need. Though facilitation of exchanges is
considered to be the principal role of money, it serves other
purposes as well. Following are the main functions of money in a
modern economy.
3.1 FUNCTIONS OF MONEY
As explained above, the first and foremost role of money is that
it acts as a medium of exchange. Barter exchanges become
extremely difficult in a large economy because of the high costs
people would have to incur looking for suitable persons to
exchange their surpluses.
Money also acts as a convenient unit of account. The value of
all goods and services can be expressed in monetary units. When
we say that the value of a certain wristwatch is Rs 500 we mean
that the wristwatch can be exchanged for 500 units of money,
where a unit of money is rupee in this case. If the price of a pencil
is Rs 2 and that of a pen is Rs 10 we can calculate the relative
price of a pen with respect to a pencil, viz. a pen is worth