The Transaction Cost Approach
Money is used as a standard of measurement, as a means of liquidity as well as of deferment, and as an instrument for payment. These services provided by money facilitate transactions in a free market economy. Money economizes exchange of goods by lowering the information, synchronization and transaction costs. Thus the monetarized economy has apparently proven to be superior to the simple barter economy in practice as well as in economic theory. The advantages of money can be seen in the microeconomic benefits to economic agents and in the macroeconomic gain in welfare. Modern monetary economic theory has elaborated the benefits derived from money in detail.
KeywordsTransaction Cost Economic Agent Demand Money Economic Communication Cash Holder
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