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Explain the 'standard of Deferred Payment' function of money. How has it solved the related problem created by barter?

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Deferred payments are postponed, payment to be made in future. Such payments, arise on account of borrowing, and lending activities. It has removed the problem of absence of financial institutions in the Barter System. It has also removed the problem of trading in wider areas.

Detailed Answer:

Money as a standard of deferred payments means that money acts as a 'standard' for payments, which are to be made in future. Every day, millions of transactions take place in which payments are not made immediately. Money encourages such transactions and helps in capital formation and economic development of the economy. Money as a standard of deferred payments has simplified the borrowing and lending operations. It has led to the creation of financial institutions. Under barter system, it was very difficult to make future payments and contractual payments such as salaries, loans, interest payments, etc. For example, it was difficult to decide whether wages to a labour are to be paid in terms of food grains or any other commodity. This is because it was difficult to value the services of labour in terms of a commodity. Similarly, if a loan is taken in the form of a commodity, then the problem will arise in its repayment. However, as superior to the Barter System, money made the system of deferred or contractual payments such as salaries, interest payments, etc. possible.

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