Question

Explain the 'medium of exchange' function of money.

Answer 1

Medium of Exchange: Right from the beginning, money has been performing the important function of medium of exchange in the society. Money facilitates transactions of goods and services as a medium of exchange. Producers sell their goods to wholesalers in exchange of money. Wholesalers, in turn, sell their goods to the retailers and the retailers sell these goods to the consumers in exchange for money. In the same way, all sections of society sell their services in exchange for money and with that money, buy goods and services which they need. Money, working as a medium of exchange, has eliminated inconvenience which was faced in barter transactions.