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Questions and Answers
What is the primary function of money in an economy?
What is the primary function of money in an economy?
- Store of value
- Standard of deferred payment
- Unit of account
- Medium of exchange (correct)
How does money facilitate exchange between parties?
How does money facilitate exchange between parties?
- By increasing the complexity of transactions
- By simplifying the procedure of obtaining goods and services (correct)
- By eliminating the need for specialization
- By encouraging barter systems
What disadvantage does money eliminate in the exchange process?
What disadvantage does money eliminate in the exchange process?
- Need for a physical presence
- Double coincidence of wants (correct)
- High transaction costs
- Legal restrictions on trading
What is a significant effect of using money in transactions?
What is a significant effect of using money in transactions?
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What advantage does money provide that supports consumer behavior?
What advantage does money provide that supports consumer behavior?
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Study Notes
Money as a Medium of Exchange
- Money facilitates the exchange of goods and services.
- Money eliminates the need for a "double coincidence of wants," where two parties must each have something the other desires for a trade to occur.
- Money allows for specialization, increasing productivity and efficiency in the economy.
- Consumers have increased freedom of choice when using money to purchase goods and services.
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