entid ISBN 9781 Heather t MINDTAP CHAPTER 2 HOMEWORK: MONEY, MONEY SUPPLY and IN
ID: 1170552 • Letter: E
Question
entid ISBN 9781 Heather t MINDTAP CHAPTER 2 HOMEWORK: MONEY, MONEY SUPPLY and INTEREST Due on jun 13 at 11 PM CDT 1. Functions of money and barter Consider an economy in which money does not exist, so that agents rely on barter to carry out transactions. When the economy was small, barter seemed sufficient. However, the economy has now begun to grow. if people in this economy trade five goods, the price tag of each good must list prices, and the economy requires prices for people to carry out transactions. Suppose that the number of goods people trade increases to 17. Then the price tag of each god must t prices, and the number of prices that the economy requires increases to Now suppose that our economy has created money and abandoned barter and that the government now prints a national currency. In this economy, money and currency t the government issues currency means that the currency will be accepted as money by all a The fact that the currency is backed by the government means that it will never lose value and will remain a perfect unit of account. O I'm Cortana. Ask me anything.Explanation / Answer
This is what Economics would call “Double Coincidence of Wants”. So the number of prices would be equal to the number of paired goods possible. So for N goods, the number of prices will be N*(N-1)/2.
So for 5 goods, total number of prices = 5*4/2 = 10 and each price tag will have 4 prices.
For 17 goods, total number of prices – 17*16/2 = 136 and each good will have 16 price tags.
Even if the government introduces currency, it will not be readily accepted by buyers and sellers because of an accurate benchmark of tagging the new currency to the value of the existing goods. So the correct option will be Option no.4 (i.e.) Just because the government introduces currency - - - - - - - - - - money does not lose its value.
When the cost of living keeps increasing, we end up shelling out more money for the same goods. Which means that the money is losing its value over time. Hence the most impacted characteristic is the Store of Value which measures the level to which a money can preserve its value over time.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.