A system where goods and services are exchanged directly without a common unit of account is called the:
A) commodity system.
B) fiat system.
C) barter system.
D) none of the above.
The correct answer and explanation is :
The correct answer is C) barter system.
Explanation:
A barter system is an ancient method of exchange where goods and services are directly traded for other goods and services without the use of money or a common unit of account. Essentially, it relies on a reciprocal exchange between two parties: one party offers something of value, and in return, receives something else they find valuable.
In the barter system, transactions are based on mutual need and agreement. For example, if a farmer has excess grain but needs livestock, and a livestock owner has extra animals but requires grain, they may directly exchange these goods without needing any standardized currency or monetary system to facilitate the trade. This kind of direct trade, however, depends on what economists call the “double coincidence of wants”—both parties must have something the other wants. If one party does not need what the other is offering, a trade cannot occur.
The commodity system, on the other hand, uses a commodity (such as gold or silver) as a medium of exchange, but this still introduces a unit of account and something standardized that can be used for transactions, unlike the pure barter system.
The fiat system is a modern monetary system where money has no intrinsic value but is established as legal tender by government decree. Fiat money is backed by the government and is universally accepted for trade and exchange, unlike barter where no standard value is established for items exchanged.
In conclusion, the barter system represents a direct exchange of goods and services without the involvement of a common unit of account, making it the correct answer to the question.