Question

Explain the "medium of exchange" function of money.

Answer 1

Money acts as medium of exchange as it facilitates exchange through a common medium i.e. currency. With money as a medium, the two components of a transaction namely, sale and purchase can be easily separated. In other words, money eliminates the need for double coincidence of wants for an exchange to take place and can be performed independently of each other. Moreover, money has widened the domain and scope of market. Today, market is no more limited to a specific geographical location. This can be verified by the increasing popularity of online transactions. Hence, it can be concluded that money has infused commercialisation, which has raised the overall level of economic activities and has made production market oriented.