In a small island economy, fishermen trade fish directly for vegetables with farmers, and farmers trade vegetables for cloth with weavers. The government is considering introducing a national currency.

What is the main problem with the current system that the introduction of money would solve?

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Question

In a small island economy, fishermen trade fish directly for vegetables with farmers, and farmers trade vegetables for cloth with weavers. The government is considering introducing a national currency.

What is the main problem with the current system that the introduction of money would solve?

Accepted Answer

The double coincidence of wants — Award 1 mark for identifying that barter requires both parties to want what the other has at the same time. A is incorrect — inflation is a problem associated with monetary economies. C is incorrect — credit creation requires a banking system with money. D is incorrect — interest rates apply to money lending, not barter.

Answer

Commercial banks creating too much credit

Answer

Interest rates being too high

Answer

The double coincidence of wants

Answer

Inflation affecting the price of goods

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