Question

Which of the following is one of the most important benefits of money in an economy?

Money allows for the exchange of goods and services.

Money allows for the accumulation of wealth.

Money makes exchange easier, leading to more specialization and higher productivity.

Money encourages people to produce all of their own goods (self-sufficiency) and therefore increases economic stability.

Answer 1

Option C.

• One of the most important benefits of money is that it can be easily used as a medium of exchange.
• When money acts as a Medium of exchange, it increases the trade of various goods and services between parties.
• With money as a medium of exchange, firms can specialize in the production of certain goods and services and also allows them to increase their productivity level which further increases the overall productivity in a nation thereby eliminating the problem of double coincidence of wants.
• It increases productivity as it gives incentives to the firms to produce more by utilising limited resources in a very careful manner.