Answer to Question #235942 in Macroeconomics for Priest

Question

Which of the following is correct in respect of “money as a medium of exchange”?

(i) Money facilitates the exchange of goods.

(ii) Money reduces or eliminates the need for barter.

(iii) Money is an object that sellers will accept as payment.

A. only (i) is correct.

B. only (iii) is correct.

C. (i), (ii) and (iii) are correct.

D. only (i) and (ii) are correct.

Answer 1

C

Money is frequently described in perspective of the three purposes or activities that it performs. Money functions as a means of trade, a measure of wealth, and a measure of value. Money's primary role is to serve as a medium of exchange in order to enable transactions. Without currency, all exchanges would have had to be performed through barter, which includes the direct transfer of one good or service for another. The issue with a bartering system is that in attempt to get a certain products or product from a provider, one must also acquire a good or service of similar value, which is something the provider also seeks. In a bartering system, transaction can take place unless the wants of two transacting parties coincide. The chance of a double synchronicity of wants, on the other hand, is limited, making the interchange of commodities and services difficult. Money successfully overcomes the double coincidence of desires problem by functioning as a vehicle of trade that is accepted in all transactions, by all participants, independently of whether they demand one another's products and services.