Choose the correct statements from the following: (A) Adam Smith is t…

Choose the correct statements from the following:

(A) Adam Smith is termed as Father of Modern Economics.
(B) J.M. Keynes gave the Theory of Income, Output and Employment.
(C) Four Sector Model = $C+I+G+(X-M)$
(D) Store of value is primary function of money.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A), (B) and (C) only

(A) Adam Smith is termed as Father of Modern Economics. This is correct. Adam Smith, with his work "The Wealth of Nations," is often considered the father of modern economics.

(B) J.M. Keynes gave the Theory of Income, Output and Employment. This is correct. John Maynard Keynes is known for his theories regarding income, output, and employment, particularly outlined in his work "The General Theory of Employment, Interest, and Money."

(C) Four Sector Model = $C+I+G+(X-M)$. This is correct. Macroeconomics sees an economy as a combination of four sectors, namely households, firms, government and external sector. The Four Sector Model (C+I+G+(X-M)) is a fundamental equation in macroeconomics. It represents the equilibrium condition where total expenditure in the economy (C - consumption, I - investment, G - government spending, X - exports, M - imports) equals total output.

(D) Store of value is primary function of money. This is incorrect. Store of value is the secondary function of money.

The primary function of money includes money as a medium of exchange and money as a measure of value. As a medium of exchange, it refers to a function of money in which money is considered as a mode of exchanging goods. This function of money solved the main problem of barter system which was double coincidence of wants. As a measure of value, it refers to a function of money that helps in determining the value of goods and services. Money is taken as the common denominator while measuring the value of goods and services in monetary terms.

Secondary function: The secondary function of money includes money as a store of value and money as a standard of deferred payment. As a store of value, it refers to the function of money that helps individuals in storing their wealth in the form of money. Money allows you to store value over time without the risk of spoilage or depreciation that physical goods might experience. You can exchange money for goods and services later, preserving its purchasing power. Therefore, money acts as an asset that sustains value over a period of time.

As a standard of deferred payment, it refers to one of the most important functions of money. Deferred payments refer to payments made on loans, salaries, pensions, insurance premium, interests, and rents. The necessary condition for deferred payment is that the amount of repaid money should be the same as it was at the time of purchase of the good. Since all the goods and services can be expressed in terms of money, it makes the future payments easy and functional.