ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -to be useful, money must be easily divided into smaller denominations, or units of value. when money is divisible, people only have to use as much of it as necessary for any exchange. ex: if you use a $20 bill to pay for a $5 dollar lunch, the cashier will not rip your bill into four pieces in order to make change.

Detailed explanation-2: -If someone wants to buy a smaller unit of a commodity, then divisibility of money can make it possible. For example, cows cannot function as good money. This is because you cannot divide a cow without making it lose its value.

Detailed explanation-3: -Because economic transactions frequently occur in varying amounts, a currency must be divisible to be used broadly in an economy. The cumulative value of the currency must also remain the same after it has been divided into different denominations.

Detailed explanation-4: -Divisibility and Denomination refers to the minimum amount or size in which assets can be traded. For instance, US bonds are generally sold in $ 1, 000 denominations, commercial paper in $25, 000 units and deposits are infinitely divisible.

Detailed explanation-5: -Divisibility. Money must be made in various units. You should be able to make change. By having various units of money, goods of various value can be paid for, and change for larger units of money can be made. Barter, on the other hand, requires goods that are traded to be of equal value.