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Explain why economies make use of money?

Sunday, July 22, 2012

Money is anything which we can use as a medium of exchange between people for sharing of goods and services.
In an economy money plays a vital role. Some of the functions of money are medium of exchange, measure of value, store of the value of goods and services and transfer of value.
When money was not invented previously people use Barter Exchange System as an alternative. Barter Exchange is a process of exchanging goods and services with goods and services.
But, Barter Exchange had a lot of disadvantages. Some are:- the double co-incidence of wants, problem to store the value of goods and services, problem to transfer the value of goods and services and problem to determine the value of goods.
Money makes trade more efficient. Most of the goods and services are now exchanged in money. Acting as a medium of exchange the double co-incidence of wants is now simplified. It also acts as a medium to measure the value of goods and services in an economy. It also helped to store and transfers the value of goods and services which has now encouraged savings and investment. Trade and investment provides employment opportunity, increase in income and high living standard of the people.
Finally we can conclude that money has made our life simpler and easier than previous. So, most of the goods and services are exchanged in money. So, economies make use of money.

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