Analysis of Payment Methods
In an economy where a physical commodity (e.g., grain) is used as money, a commercial bank introduces a payment service. Customers can deposit their commodity at the bank and make payments by instructing the bank to transfer the claim on that commodity to another person's account. Compare and contrast the use of the bank's payment service with the direct use of the physical commodity for transactions. Your analysis should address the implications for both the individuals making the transaction and the bank itself.
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In an economic model, a farmer deposits 100 bushels of a commodity (grain) at a commercial bank. The farmer then buys supplies from a merchant for 20 bushels, paying by instructing the bank to transfer the claim for 20 bushels from the farmer's account to the merchant's account. Which statement correctly analyzes the immediate impact on the bank's balance sheet as a result of this specific transaction?
Analysis of Payment Methods
In an economic model where individuals can deposit a physical commodity (e.g., grain) at a bank and then use those deposits to make payments, the bank's holding of the physical commodity and the customers' claims on that commodity are both recorded as assets on the bank's balance sheet.
Payment Method Trade-offs