Money is the medium of exchange. It is used as a standard of value in which all prices are expressed. It is also a store of value for future consumption. Various characteristics of money are desirable, such as divisibility and durability.
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If no money were used, people would revert to barter, that is, exchange of items for other items. A farmer who would have an extra cow could exchange it for a horse, or two sheep, or a ton of apples, or a ton of eggs, for instance. Matching needs would have to exist: the one who had the eggs would have to want a cow. But the farmer may want a pound of eggs instead of a ton of eggs. Thus, without some asset chosen as money, transactions are difficult. |
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