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.
- A.1, 2 and 4
- B.2 and 3 only
- C.1, 2 and 3
- D.1, 3 and 4
Correct answer
Explanation
The correct answer is C, 1, 2 and 3. Money must work as a medium of exchange, serve as a unit of account and be easy to divide; a higher value in other uses is not required.
Money removes the need for a double coincidence of wants in barter. Its main functions are a medium of exchange (the intermediate in every sale and purchase), a unit of account or measure of value (the standard in which prices are quoted), a store of value and a standard of deferred payment. To do these jobs well it must be generally acceptable, durable, portable and divisible, so that both small and large payments can be made. If a thing had a higher value in some other use, people would withdraw it from circulation to use it that way, as Gresham-type hoarding shows; modern paper money has almost no value outside its use as money.
A and D are wrong: both include statement 4, which is not a characteristic of money.
B is wrong: it leaves out statement 1, the most basic function of money.
Exam tip: functions of money are medium of exchange, unit of account, store of value and standard of deferred payment.
Practice Questions
View allConsider the following statements : Human capital formation as a concept is better explained in terms of a process which enables
1. individuals of a country to accumulate more capital.
2. increasing the knowledge, skill levels and capacities of the people of the country.
3. accumulation of tangible wealth.
4. accumulation of intangible wealth.
Which of the statements given above is/are correct ?
- A.1 and 2
- B.2 only
- C.2 and 4
- D.1, 3 and 4
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Human capital formation means raising people's knowledge, skills and abilities, which is a form of intangible wealth. Human capital is the stock of education, skill, health and experience that makes people productive.
Read the full explanation →Consider the following statements :
1. In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.
Which of the statements given above is/are correct?
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
Show answer
Procurement at MSP is limited, and MSP is a floor price that market prices often exceed. The Government announces MSPs for 22 mandated crops on the recommendation of the Commission for Agricultural Costs and Prices (CACP).
Read the full explanation →Increase in absolute and per capita real GNP do not connote a higher level of economic development, if
- A.industrial output fails to keep pace with agricultural output.
- B.agricultural output fails to keep pace with industrial output.
- C.poverty and unemployment increase.
- D.imports grow faster than exports.
Show answer
Economic development means better lives for people, so rising income alone is not development if poverty and joblessness are growing.
Read the full explanation →Consider the following statements :
1. Coal sector was nationalized by the Government of India under Indira Gandhi.
2. Now, coal blocks are allocated on lottery basis.
3. Till recently, India imported coal to meet the shortages of domestic supply, but now India is self-sufficient in coal production.
Which of the statements given above is/are correct?
- A.1 only
- B.2 and 3 only
- C.3 only
- D.1, 2 and 3
Show answer
The coal industry was nationalised under Indira Gandhi, but coal blocks are not given by lottery and India still imports coal.
Read the full explanation →Consider the following statements in respect of the International Bank for Reconstruction and Development (IBRD) :
I. It provides loans and guarantees to middle income countries.
II. It works single-handedly to help developing countries to reduce poverty.
III. It was established to help Europe rebuild after the World War II.
Which of the statements given above are correct?
- A.I and II only
- B.II and III only
- C.I and III only
- D.I, II and III
Show answer
Statement II is wrong because the IBRD works alongside other World Bank Group institutions and partners, not single-handedly. The IBRD was set up at the Bretton Woods Conference in 1944, together with the IMF.
Read the full explanation →