Monetary Policy

Monetary Policy:

Introduction:

Money has become so significant that the modern economy is explained as money economy. Modern economy can’t work without money. Even in early phases of development, the requirement for exchange occurs. However exchange occurs first in the form of barter. Barter is the direct exchange of goods for goods. This is a system of trading without the utilization of money. In the past whenever needs of men were a few and simple, the barter system worked fine. However as days passed by, it was found to be inappropriate. It had numerous difficulties. For illustration, barter needs double coincidence of needs. That is, a person should have what the other person requires and vice-versa. And this is not always feasible. For example, when a person who has a cow needs a horse in exchange, the other person should have it and he should require a cow. Or else exchange can’t occur. Again, there is the complexity of storage. Money serves as a store of value. In the absence of money, a person has to store his capital in the form of commodities and they can’t be stored for a long period. Certain commodities are perishables and certain will lose their value.

 

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