For anything to be recognized as money, it needs to have which of the following characteristics?
- 1. Act as an intermediate in the exchange process
- 2. Standard unit for quoting prices
- 3. Must be easily divisible
- 4. Have higher value in alternative uses
Select the correct answer using the code given below.
1, 2 and 4
2 and 3 only
1, 2 and 3
1, 3 and 4
Answer is Wrong!
Answer is Right!
This question was previously asked in
UPSC CAPF – 2021
1. Medium of Exchange: Facilitates transactions by acting as an intermediate. This is crucial for avoiding the inefficiencies of barter. (Characteristic 1 is correct).
2. Unit of Account: Provides a common measure of value, allowing prices of goods and services to be quoted and compared. (Characteristic 2 is correct).
3. Store of Value: Allows wealth to be held over time. (Not explicitly listed, but related to other characteristics).
– Desirable characteristics of a good medium of exchange include:
– Durability: Withstands physical wear and tear.
– Portability: Easily carried and transported.
– Divisibility: Can be divided into smaller units for transactions of varying values. (Characteristic 3 is desirable and generally necessary for efficient transactions).
– Uniformity: All units are the same.
– Limited Supply: Controls inflation.
– Acceptability: Widely accepted by people.
– Characteristic 4: “Have higher value in alternative uses” means the intrinsic value of the material used as money is high (e.g., gold, silver). This is a characteristic of commodity money. However, modern money (fiat money) does not typically have high value in alternative uses; its value as money is derived from trust and government decree. Therefore, this is not a necessary characteristic for something to be recognized as money in general.
– Based on the standard functions and desirable characteristics, 1, 2, and 3 are generally considered essential or important attributes of money.