must find someone who has a hammer and wants wheat. A successful
barter transaction thus requires what is called a double coincidence of
wants.
Money eliminates the cumbersome system of barter by separating the
transactions involved in the exchange of products. If a farmer has wheat
and wants a hammer, she merely has to find someone who wants wheat.
The farmer takes money in exchange. Then she finds a person who wants
to sell a hammer and gives up the money for the hammer.
Money greatly facilitates trade, which itself facilitates specialization.Money now seems like such a simple and obvious thing, but it was an
enormously important invention. By facilitating trade and specialization,
money has played a central role in driving economic growth and
prosperity over hundreds of years. We will have much to say about
money (especially in the macroeconomics half of this textbook), including
how the commercial banking system and the central bank can influence
the amount of money circulating in the economy.
Globalization
Market economies constantly change, largely as a result of the
development of new technologies and the new patterns of production and
trade that result. Over the past several decades, many of these changes
have come under the heading of globalization, a term often used loosely to
mean the increased importance of international trade.