Question

Explain the following function of money:

Medium of exchange

Answer 1

1. Money serves as a medium of exchange. This is the main and most important function of money. Money carries the capacity to purchase goods and services which people need.
2. Money is normally accepted as a medium through which all the sales and purchases takes place.
3. As the money is being accepted as a common medium of exchange, it has eliminated the difficulties of barter system.
4. It has avoided the wastage of time and resources and has eliminated the need for double coincidence of wants involved in the barter.