Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter Money and Banking. This page offers a step-by-step solution to the specific question from Exercise 1, Question 2:
What are the main functions of money? How does money overcome the shortcomings of a barter system?
. With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.What are the main functions of money? How does money overcome the shortcomings of a barter system?
The main functions of money are as follows:
1. Medium of exchange
Money acts as a medium of exchange as it facilitates exchange through a common medium, i.e. currency. In other words, money helps in the buying and selling of goods. For example, a person can sell his goods to another for money and that person can use money to purchase goods of his choice. Money solves the problem of double coincidence of wants.
2. Unit of value
The values of goods can be measured in terms of money. It is a common medium through which we can calculate the value of each and every good. The value of a good in terms of money is called the price. In the barter system the lack of a common denominator for measuring values of goods was a major drawback.
3. Store of value
This function explains the importance of money as value storage. This implies that wealth in the form of money can be stored easily as a medium of exchange for future use. For example, money can be stored in banks for meeting emergency and future needs.
4. Standard of deferred payments
Payments can easily be made through the medium of money. In other words, it is very difficult to pay back a loan in terms of goods and services. However, with the advent of money the payments of loans or interests can easily be made.
Money overcomes the shortcomings of barter system in the following manner:
a. Money solves the problem of double coincidence of wants. For example, if a person needs wheat in exchange of tea, then he/she must search for a person who is ready to trade wheat for tea. Money made the need for such searches redundant.
b. In barter system, it was very difficult to measure the value of one good in terms of another. For example, it is difficult to calculate the value of a cow in terms of wheat.
c. It was very difficult to store goods, especially perishable goods (fruits, meat, etc.) for the purpose of value storage. Money serves this purpose.
4. The contractual or future payments are much difficult to make in the barter system. For example, a worker working on contract basis could not be paid in terms of rice or chairs.
NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:
Stay updated with our latest educational content and study tips
It’s not about starting over if you took a break to care for children, take care of yourself, be healthy or for any other reason. This is a realistic strategy for the recovery of skills, selection of the right job, and overcoming the resume problem. One year, three years or 10 years of a career … Read more
Read MoreThere’s no need to score 95% or achieve a JEE/NEET rank. You don’t need to score 95% or rank in JEE/NEET to build a solid career. A candid and pragmatic guide to the routes that actually work for students who have an average mark and what to do when faced with the options. If … Read more
Read MoreAI tools, online platforms that are much cheaper than coaching centres and the changing idea of what “structure” even means have upended this argument more in the past two years than in the decade preceding it. Here’s what is really the case for 2026 – and what has actually stayed the same. If you look … Read more
Read MoreStarting to make a new career after 30 isn’t a start from scratch. Marketing, teaching, financial, retail, healthcare, sales and other professionals can pursue careers in technology by applying the existing knowledge and skills they have acquired to new technology skills. There are various ways to enter the technology industry, such as in IT support, … Read more
Read MoreCalculate percentage from obtained marks and total marks.
Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter . This page offers a step-by-step solution to the specific question from Excercise 1 , Question 2: What are the main functions of money? How does money overcome the shortcomings of a barter system?....
Fresh educational articles and updates.
Most-read articles from SaralStudy.
Fast access to frequently used study resources.
Recently viewed articles based on SaralStudy activity.
Add Comment