Answer to Question #126792 in Macroeconomics for Abdullah

Question

Explain how money helps specialisation and trade to occur

Answer 1

Money "gave birth to" trade, and since trade is one of the most ancient occupations of mankind, the roots of the monetary system go back to the same hoary antiquity, although its structure (like the type of money itself) has changed many times and greatly over the past millennia.

Money facilitates the movement (or circulation) of goods between traders, and that is why the first role of money is a means of ensuring the circulation of goods in the market. Money serves as a universal language there, with the help of which all market participants easily agree.

Money is a social institution that increases wealth by lowering the cost of exchange and promoting greater specialization in line with people's comparative advantages.