Correct Option
The correct option is 2 only
Explanation
The evolution of money is primarily driven by the need to overcome the inefficiencies of the barter system. Money serves as a generally accepted medium of exchange, facilitating trade by separating the acts of purchase and sale.
Statement-wise Analysis
- Statement 1 is Incorrect: The barter system is a system of exchange where goods are directly exchanged for other goods without the use of money. For a transaction to occur in this system, a double coincidence of wants is essential. This means that a person desiring to sell a specific commodity must find another person who not only wants that specific commodity but also possesses the exact commodity the first person desires in exchange.
- Statement 2 is Correct: Money acts as an intermediate medium of exchange. By providing a common measure of value and a medium of payment, money eliminates the need for a double coincidence of wants. A person can sell a commodity for money and use that money to purchase any other commodity, without needing to find a direct trading partner for the goods.
- Statement 3 is Incorrect: Historically, the evolution of money began with commodity money. In the very early stages of Indian history, before the introduction of metallic coins, items of intrinsic value such as grains and cattle were used as money. The use of metallic coins (made of gold, silver, copper, etc.) is a later development in the evolution of money, appearing significantly after the use of agricultural and pastoral commodities as mediums of exchange.
Key Takeaway
Key Takeaway: The primary function of money as a medium of exchange is to resolve the problem of double coincidence of wants inherent in the barter system, thereby facilitating smoother economic transactions.