Question

When economists say that money serves as a medium of exchange, they mean that it is a. a way to keep wealth in a readily spendable form for future use. b. a means of payment. c. a monetary unit for measuring and comparing the relative values of goods. d. declared as legal tender by the government.

Answer 1

Answer:

B

Explanation:

Money as a medium of exchange means money can be used a means of payment. That is, money is used is sorting everyday transactions. Recall that there are three motives of holding money;

1. Transactionary

2. Precautionary

3. Speculative

Transactionary motive means you can use money to sort your everyday transactions.

Precautionary motive - You can save money for rainy days. (i.e. accident, sickness etc)

Speculative motive means you can use money to invest - make investment decisions with money (buy treasury bills, money market fund instruments, currency, etc)

All of the above motives can not be achieved if money does not serve as a means of payment.

Money as a medium of exchange means the legal tender (money) has a government backing.