Final answer:
A medium of exchange refers to money acting as a widely accepted intermediary in transactions, eliminating the need for barter. This function of money is crucial for facilitating economic activity and is complemented by its roles as a unit of account and a store of value.
Step-by-step explanation:
Being a medium of exchange or means of payment refers to one of the key functions of money in an economy. It is best described by option D) A method of facilitating transactions by eliminating the need for barter. Money acts as an intermediary that is widely accepted in exchange for goods and services, thereby simplifying trades that would otherwise require a complicated system of bartering where there needs to be a double coincidence of wants.
As a medium of exchange, money must be commonly accepted by all parties in a transaction. Furthermore, money also serves as a unit of account, providing a common measure for valuing goods and services. This allows for easy comparison and accounting, making it far simpler than bartering systems. Lastly, as a store of value, money can be saved and retrieved in the future, retaining its value over time. If money did not serve as an effective store of value, immediate spending would be required to avoid loss, undermining its role as a medium of exchange.
Together, these functions facilitate smooth and efficient economic activity, whether we're using currency, digital transfers, or even examining the role of cryptocurrency in today's markets.