Money and Banking
Money and its functions
Show how money solves each barter problem.
Without money, people must barter: swap goods directly. Barter needs a double coincidence of wants: a weaver who wants rice must find a farmer who has rice and wants cloth. That is hard.
Money solves this through its functions:
- Medium of exchange: money is accepted by everyone, so the weaver sells cloth for money and buys rice with it.
- Unit of account: all values are stated in one unit, the rupee. If a notebook costs ₹20 and a pencil ₹5, a notebook is worth 4 pencils.
- Store of value: money can be saved for later. Rice rots and costs space to store; money does not perish and is cheap to keep.
But money stores value well only if prices are stable. When prices rise, each rupee buys less: the purchasing power of money falls.
Today money is changing form too: India is moving towards digital payments (cards, UPI, mobile wallets).
Money is a go-between everyone accepts.
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