Which statement best explains why money was invented?

• A. To eliminate the need for all forms of trade
• B. To ensure that all resources are allocated efficiently
• C. To increase the amount of goods produced in an economy
• D. To facilitate exchange by serving as a medium of exchange

Answer: (D)

Verified step by step guidance

1. Understand the concept of barter, which is the direct exchange of goods and services without using money. Recognize the limitations of barter, such as the double coincidence of wants, where both parties must want what the other offers.
2. Identify the role of money in an economy. Money serves as a medium of exchange, which means it is widely accepted in trade and eliminates the need for a double coincidence of wants.
3. Consider other functions of money, such as a store of value and a unit of account, but focus on the primary reason for its invention: to facilitate exchange.
4. Evaluate the given options by comparing them to the fundamental economic problem money solves. Money was not invented to eliminate all trade, ensure efficient resource allocation, or directly increase production, but to make trading easier and more efficient.
5. Conclude that the best explanation for why money was invented is that it facilitates exchange by serving as a medium of exchange, simplifying transactions and promoting economic activity.