Social Science (087) — AI-generated practice question

Money acts as a medium of exchange by eliminating the need for double coincidence of wants. The modern banking system extends this role through demand deposits and cheques, allowing payments without physical cash.

Example: Shoe manufacturer M. Salim pays his leather supplier by writing a cheque. The leather supplier deposits it in his own bank account. The bank transfers the amount from Salim's account to the supplier's account within days — no cash changes hands.

Thus, demand deposits share the essential features of money. Since they are widely accepted as a means of payment, they constitute money in the modern economy.

Source: Money and Credit, Chapter 3 — Deposits with Banks / Cheque Payments

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• Examiners expect: definition of medium of exchange → problem it solves (double coincidence) → how demand deposits + cheques replicate this function → example from the textbook (Salim's cheque payment).
• The Salim–leather supplier example is directly from the textbook — use it; don't invent a new one.
• Key term to include: demand deposits, cheque, transfer between accounts.
• Do not describe how banks lend money — that is a separate concept and wastes words here.