In an economy that uses a bulky physical commodity (e.g., grain) for all payments, a bank introduces a service where it holds the commodity for customers and facilitates payments by transferring ownership between accounts on its books. Which statement best analyzes the fundamental change this service brings to the nature of a transaction?
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Example of Using Bank Accounts for Payments in the Marco-Julia Model
Alternative Means of Exchange in the Marco-Julia Model
In an economy where all transactions are conducted using large sacks of grain, a new banking institution allows individuals to deposit their grain. Customers can then direct the bank to transfer ownership of a portion of their deposited grain to a merchant's account to pay for goods. What is the primary economic advantage of this payment service compared to using physical grain for every transaction?
The Role of a Financial Intermediary
The Bank's Intermediary Function
In an economy where bulky sacks of grain are the primary means of payment, a bank begins offering a service to simplify transactions. A farmer wants to buy a new plow from a blacksmith using this service. Arrange the following actions into the correct logical order to complete the purchase without physically exchanging any grain.
In an economy that uses a bulky physical commodity (e.g., grain) for all payments, a bank introduces a service where it holds the commodity for customers and facilitates payments by transferring ownership between accounts on its books. Which statement best analyzes the fundamental change this service brings to the nature of a transaction?
Evaluating a Commodity-Based Bank Payment System
In an economy where a bulky commodity like grain is used as money, a bank that acts as a payment intermediary fundamentally changes the nature of money by creating a new, independent currency separate from the grain it holds in its vaults.
An economy transitions from using a physical commodity (e.g., grain) for all transactions to a system where a bank acts as a payment intermediary. Match each characteristic to the payment system it describes.
In an economy where a bulky commodity like grain is used for all payments, a bank can offer a service to simplify transactions. When a customer uses this service to buy goods from a merchant, the bank does not physically move the grain. Instead, it updates its records to transfer the ________ on the deposited grain from the buyer's account to the merchant's account.
Impact of Resistance to a New Payment System