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Difficulty: MediumMeaning, Functions, and Characteristics of Money

A merchant refuses to accept a private company's promissory note in settlement of a debt, but readily accepts banknotes issued by the Central Bank. Which fundamental characteristic of money accounts for the universal willingness of traders to accept banknotes in commercial transactions?

  1. General acceptabilityAnswer
  2. B
    Portability
  3. C
    Durability
  4. D
    Divisibility

Answer

General acceptability is the primary characteristic that makes banknotes universally receivable for goods and services.
General acceptability is the most essential quality of money. Banknotes issued by the central bank are designated as legal tender, meaning members of the public are legally required and socially willing to accept them in discharge of debts. Private promissory notes lack this universal public trust and statutory mandate.

Step-by-Step Solution

1
Analyze the commercial scenario described in the stem.
The scenario contrasts a private debt instrument (promissory note) with legal tender (central bank banknotes).
Understanding why one instrument is accepted while another is rejected clarifies the required attribute of money.
2
Evaluate the core characteristics of money against the scenario.
Central bank currency possesses general acceptability backed by law (legal tender status), whereas private notes depend on individual credit trust.
Without general acceptability, an item cannot effectively perform as money across all economic transactions.

Key Concept

General Acceptability as an Essential Characteristic of Money
Estimated Time:1m 0s
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Topics

Meaning, Functions, and Characteristics of Money

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