BEC 112 - a Money is important in our everyday lives What...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
a) Money is important in our everyday lives. What are the five major reasons of having money in any given economy? (10marks) Money is anything that is generally accepted as a medium of exchange for goods and services. Money is necessary in the economy for the following reasons: i. It facilitates exchange The basic purpose of money is to make exchange of goods or services easier. Money helps to make exchanges easier by solving the barter problem. You can only barter with people who have what you want and want what you have. Therefore, if everyone wants money, that problem is significantly reduced thus consuming less time. Money allows trade to develop much more freely. ii. Money is a measure of value Though people can exchange goods and services directly, they can be more certain of fair dealing if they can measure the value of their goods or services in terms of recognized money. It is used as the common benchmark to designate the prices of goods throughout the economy. This means that the prices of goods are stated in terms of monetary unit. For instance, farmers who may wish to exchange their livestock can be helped if they know the values of the livestock in monetary terms. iii. Money is a standard of deferred payment Money is used as a standard benchmark for specifying future payments for current purchases. Exchange and trade flows more freely if it is possible to carry forward debts of a known amount. For instance, one may get a loan to buy a vehicle today and then pay off the loan
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
with payments deferred into the future. The amount of these future payments are stated in terms of money. iv. Money is a store of value Money can be kept as a store of value that can be held in reserve for purchases not yet planned. Value is obtained from a good when it is consumed and when it is used to satisfy wants and needs. The value from consuming goods can be stored in several ways and one of the best ways is money. The value of money can be held over time as long as the money value does not fall.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern