Theory question 111
Money and Inflation(a) Distinguish between a cheque and a bank note.
(b) What are the main problems of trade by barter?
Show the model answer
Model answer
(a) A cheque is a written order by a current-account holder directing the bank to pay a stated sum; it is not legal tender and may be refused. A bank note is paper money issued by the central bank; it is legal tender and must be accepted in payment.
(b) Double coincidence of wants; difficulty of valuing goods (no common measure); indivisibility of some goods; difficulty of storing wealth (perishability); no standard for deferred payment; difficulty of transporting goods.
Explanation
Barter is the direct exchange of goods for goods.