Which Of The Following Best Illustrates The Medium Of Exchange Function Of Money Quizlet

What is a Medium of Exchange?

A medium of exchange is a transitional instrument used to settle the trade of products and services Products and Services A product is a tangible item that is put on the marketplace for conquering, attending, or consumption while a service is an intangible item, which arises from the among market participants. It is a system used to enable the substitution of items. Currency is the well-nigh mutual medium of exchange accepted as a standard by all parties for settling economic transactions.

Medium of Exchange

In modernistic economies, currency Currency Currency refers to money, that which is used every bit a medium of commutation for goods and services in an economy. Before the concept of currency was introduced, goods and services were exchanged for other goods and services under the barter system. as a medium of exchange has fabricated economic dynamics possible. The standardization of currency as the medium of commutation has enabled quick trade settlements.

Summary

A medium of substitution eases the trade of goods and services.
The well-nigh common and generally accustomed medium of exchange in the modernistic economy is money – represented as currency.
A medium of exchange should have a consequent intrinsic value, be interchangeable, transportable, and reliable.

Characteristics of a Medium of Commutation

The following are the characteristics required of a medium of exchange:

Common and obtainable
Depression preservation cost
Recognizable
Transportable
Consistent
Dividable
Resistance to falsification
Large marketplace value with respect to weight and volume
Value common holdings

In an economic system, a medium of exchange increases efficiency and acts equally a stimulus for increasing trading-related activities. The most essential and of import office of a medium of exchange is that it should take real value – i.e., it should possess steady purchasing power. Also, it should be widely accepted.

For whatsoever instrument to exist widely accustomed as a medium of exchange, it should be reliable, interchangeable, and have an intrinsic value.

Purposes of a Medium of Exchange

one. To facilitate exchange

The primary purpose of a medium of exchange is to assistance a auction or purchase. The process of exchange is carried through a medium of exchange as participating parties acknowledge the worth of the medium.

2. Stored value

A medium of substitution should go on to have a stored value over time. The stored value tin can exist used in successive exchanges and does non depend on the length of the fourth dimension the medium was held.

Items other than money can besides be used every bit mediums of exchange. A not-monetary instrument can be considered ane if its value either appreciates or stays constant over fourth dimension. State and precious metals are some examples of not-monetary mediums of substitution.

3. Common language

The medium of substitution converts worldwide exchanges into common terms to enable smooth trade transactions. Regardless of the location, the dynamics of money is hands understood by the participating parties. When exchange methods other than money are used, the parties may find it difficult to make up one's mind the value of the exchanged detail.

iv. Measurement unit of measurement

The medium of substitution can also serve as a unit of account for calculating the medium's worth when it is presented in uncommon terms. For example, since foreign currencies can be converted from ane unit to another, the commutation units can be accounted for accurately.

Currency as a Medium of Substitution

Money, represented by currency, enables participation in the marketplace every bit an equal player. The purchase of a production or service implies that consumers have fabricated a bid following a price inquire Bid and Ask The term bid and ask refers to the best potential cost that buyers and sellers in the marketplace are willing to transact at. . Such an interaction allows the producers to determine the item category and the quantity to be produced.

Consumers can too predict the price models and plan their budgets accordingly. In example money loses its characteristics as a medium of exchange or the items exchanged cannot exist valued accurately, it becomes difficult for the consumers to plan their budgets.

Furthermore, marketplace unpredictability will result in a cluttered economy, as it becomes difficult to estimate demand and supply.

Alternative currencies, such as scrip, are bachelor and have surfaced during times of economic pressure to stimulate trade. Local currencies have emerged in the U.S. to promote economic growth in a particular region.

BerkShares is an example of such currency. It was first issued in 2006 as the local currency of the Berkshires region in Massachusetts and is accepted by approximately 400 local businesses. The BerkShares value is pegged to the dollar value and is issued at 95 cents.

Related Re adings

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