Pearson eText Economics of Money, Banking and Financial Markets, The, Business School Edition -- Instant Access (Pearson+)
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Chapter 3, Problem 1LO
To determine

To Determine: 

What money is?

Concept Introduction:

Not applicable.

Expert Solution & Answer
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Explanation of Solution

The primarily medium of exchange is money. This is the means of exchange. Money has few characteristics namely; it is medium of exchange, it is a source of economic transaction and it is required for economic calculations.

Before money, barter method was the mode of economic transactions. To remove the problems of barter method (marketability, durability), money came into existence. With its introduction it proved to be a unit of account and as a result any good which is widely acceptable in transactions and which involves transfer of good and service from one person to another can be identified as money. Money can be classified into fiat, commodity and bank money.

Money whose value serves as the value of money is called commodity money .eg. Gold coins

When the value of money is less than the value represented as money is called as fiat money .

When money consists of the book credit that banks extend to their depositors is called bank money .

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