Question

Each of the following is a useful property of money except (LO1) a) portability b) scarcity c) divisibility d) held only by the rich

Short answer

Option d) held only by the rich is not a useful property of money, as it does not describe a characteristic or property that makes money functional and effective in the whole economy. In contrast, portability, scarcity, and divisibility are all important characteristics that make money useful and functional in an economy.

Step-by-step solution

Understand the properties of money

Money has specific properties that make it functional and effective in an economy. These properties are: - Portability: Easy to carry and use in transactions. - Scarcity: Limited in supply, so it maintains its value. - Divisibility: Can be divided into smaller units for different transactions. - Durability: Can withstand repeated use without wearing out - Acceptability: Widely accepted as a medium of exchange. Now, let's analyze each option in relation to these properties of money.

Analyze Option a) Portability

Portability refers to the ability of money to be easily carried and used in different transactions. This property is essential since it allows people to use money easily in their day-to-day activities. Therefore, portability is a useful property of money.

Analyze Option b) Scarcity

Scarcity is a property of money that ensures it is limited in supply. This helps maintain the value of money and prevents inflation. If money were not scarce, it would lose its value as a medium of exchange because people would have an unlimited amount of it. Consequently, scarcity is a useful property of money.

Analyze Option c) Divisibility

Divisibility is the ability of money to be divided into smaller units for different transactions. This property is crucial because it makes it possible for people to use money for various transactions, both big and small. Therefore, divisibility is a useful property of money.

Analyze Option d) Held only by the rich

This option suggests that money is useful only if it is held exclusively by a select group (the rich) in the economy. This statement does not describe a characteristic or property that makes money functional and effective in the whole economy. On the contrary, the acceptability of money by all participants in an economy is a crucial property. Therefore, option d) is not a useful property of money.

Conclusion

Based on the analysis above, option d) held only by the rich is NOT a useful property of money. The other options (portability, scarcity, and divisibility) are all important characteristics that make money useful and functional in an economy.

Key concepts

Portability

Portability is an essential property of money, which makes it easy to carry and transfer from one place to another. Imagine if money were cumbersome and bulky; it would be inconvenient and impractical to use for everyday transactions. Because money needs to be exchanged frequently, this feature allows individuals to transact whenever and wherever they want.
There are a few key benefits of portability:

• Convenience: Money can fit in your wallet or purse, making it simple to have on hand when you need it.
• Accessibility: Its portability ensures that people can access and use it in different locations, both locally and globally.
• Efficiency: Easy-to-carry money speeds up the transaction process in markets and stores.

Effective monetary systems rely on portability to facilitate smooth and fast exchanges between individuals and businesses. So, this property significantly contributes to the utility of money in an economy.

Scarcity

Scarcity is a vital property of money because it helps maintain its value. If money were endlessly available, it would lose its worth. When something is scarce, people value it more, which is why money is seen as precious and worthy of acquiring. Here are some reasons why scarcity is important:

• Value Preservation: Scarcity prevents inflationary pressures by maintaining the purchasing power of money over time.
• Trust: People are more likely to trust money if they know it's not overly abundant, ensuring they can rely on it for future transactions.
• Supply Control: Limiting the supply helps economic systems manage and regulate monetary policies effectively.

By keeping money scarce, we can ensure that it remains a reliable store of value. This characteristic is essential for any medium of exchange to function optimally in an economy.

Divisibility

Divisibility refers to the capability of money to be broken down into smaller denominations. This property is incredibly beneficial as it allows for flexible transactions. Without divisibility, buying and selling goods or services of various values would be far more complicated. Here's why divisibility matters:

• Precision: It allows for exact payments, whether the transaction involves a small amount or a large sum.
• Convenience: People can use their money in any situation, like buying chewing gum or purchasing a car, without needing to find alternatives or barter.
• Inclusivity: Everyone in the economy, regardless of income, can engage in financial activities according to their means.

Because money can be divided into different units, from cents to whole dollars, it facilitates a wide array of financial transactions. The divisibility of money helps accommodate the diverse needs of the market, making it an indispensable property of an effective monetary system.