Answer the questions asked below:

(i)Why are transactions are made in money?

(ii)Why is money is called a medium of exchange?

(iii)What is the most significant feature of the barter system?

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(i) Because money is easily acceptable. A person holding money can easily exchange it for any commodity or service that he or she might want.

(ii) Because it acts as an intermediate in the exchange process.

(iii) Double coincidence of wants.

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Money is accepted as a medium of exchange because:

(i)The currency is authorised by the government of the country.

(ii)The Reserve Bank of India issues currency notes on behalf of the Central Government. As per Indian law, no other individual or organisation is allowed to issue currency.

(iii)Moreover the law legalises the use of rupee as a medium of payment that cannot be refused in setting transactions in India. 

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There is need to expand formal sources of credit in India as:

(i)This would lead to higher incomes and many people could then borrow cheaply for a variety of needs.

(ii)They could grow crops, do business, set up small-scale industries etc.

(iii)They could set up new industries or trade in goods. Cheap and affordable credit is crucial for the country’s development.

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Functions of Money are explained below:

(A)Primary Functions:

(i) Medium of Exchange, (ii) Measure of Value.

(B)Secondary Functions:

(i) Store of Value 

(ii)Standard for Deferred Payments

(iii)Transfer of Value

 

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Cheap and affordable credit is crucial for the country’s development:

(i)Higher cost of borrowing means a larger part of the earnings of the borrowers is used to repay the loan.

(ii)Hence, borrowers have less income left for themselves.

(iii)In certain cases, the high interest rate for borrowing can mean that the amount to be repaid is greater than the income of the borrower.

(iv)This could lead to increasing debt and debt trap.

(v)Also, people who might wish to start an enterprise by borrowing may not do so because of the high cost of borrowing.