Question

Why is money described as a medium of exchange?

• A. It is used to compare the value of different goods.
• B. People accept it in return for goods and services, making trade easier.
• C. Money helps individuals save their wealth safely for the future.
• D. It enables record-keeping of every transaction made in the economy.

Hint:

A medium of exchange is what both buyer and seller accept in a trade.

Answer 1

The Correct Option is B

Step 1: Understand the term:
A medium of exchange is something that everyone accepts in return for goods and services. It is the middle step in a trade.

Step 2: Barter versus money:
In barter a person must find someone who has what he or she wants and also wants what he or she has. This is called the double coincidence of wants, and it makes trade difficult.
Money removes this problem. A farmer sells wheat for money and then uses the money to buy cloth from anyone.

Step 3: Check option A:
Comparing the value of goods is the job of money as a unit of account. It is not what 'medium of exchange' means. A is wrong.

Step 4: Check option B:
This says people accept money in return for goods and services, which makes trade easier. That is exactly the medium of exchange function. B is correct.

Step 5: Check option C:
Saving wealth for the future is the store of value function. C is wrong.

Step 6: Check option D:
Keeping a record of every transaction is not a function of money at all. D is wrong.

Final Answer:
Money is a medium of exchange because people accept it in return for goods and services, which makes trade easier. This is option B. \[ \boxed{\text{(B)}} \]