Question

What is the primary function of money ?

• A. Store of value
• B. Transfer of value
• C. Medium of exchange
• D. Both (A) and (C)

Hint:

All functions of money are important, but the medium of exchange is the most fundamental. It is the function that solved the main problem of the barter system. Think of it as the "root" function from which the others grow.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Money has several important functions in an economy. The question asks for the primary or most fundamental function.

Step 2: Detailed Explanation:
The three main functions of money are: \begin{enumerate} \item Medium of Exchange: This is the most important function of money. It acts as an intermediary in transactions, eliminating the "double coincidence of wants" required in a barter system. People accept money in exchange for goods and services because they know they can use it to buy other goods and services. \item Store of Value: Money can be saved and used for future purchases. It holds its value over time (though inflation can erode it). \item Unit of Account: Money provides a common measure of value, allowing the value of diverse goods and services to be compared. \end{enumerate} While "store of value" and "transfer of value" (which is related to the medium of exchange function) are also functions, the role of money as a medium of exchange is its core and distinguishing feature. It is what separates money from other assets and is therefore considered its primary function.

Step 3: Final Answer:
The primary function of money is to act as a medium of exchange.