Q:

Why is money important?

A:

The primary importance of money stems from its economic benefits: money allows for the expansion of goods and products available to consumers and diversifies markets. Prior to the introduction of money into global economies, goods and services were exchanged in lieu of cash transactions. The barter system works when people need the skills and services of others and others need their expertise as well, but the demand for those services eventually decreases and the potential for market growth is much more limited than in a money-based market.

Unlike bartering, money does not require specific people to make complete transactions. Money only requires a market, which can be regulated by the government or by the private sector. In money markets, people can advertise and sell their goods and services to a number of other individuals. Without having to limit their outreach to certain people or industries, companies and individuals can attract a much larger audience, which, in turn, increases the chance for sales and enables more business growth. When money is used as a medium of exchange, it reduces the amount of time people would otherwise spend looking for others in need of their specific services. Having more free time with money allows people to develop specialties and produce greater quantities of goods, which increases the volume of transactions and demand for money.

Sources:

  1. imf.org

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