5 Questions
What are the three functions of money?
Medium of exchange, unit of account, store of value
What is the definition of 'medium of exchange'?
An asset used in purchasing goods and services
What is the definition of 'unit of account'?
A basic measure of economic value
What is the definition of 'store of value'?
An asset that serves as a mean of holding wealth
Why is the function of money as a medium of exchange crucial?
It suppresses the problem of double coincidence of wants
Study Notes
Functions of Money
- Money serves three primary functions: medium of exchange, unit of account, and store of value.
Medium of Exchange
- Definition: A medium of exchange is an item that is widely accepted in exchange for goods and services.
- Enables individuals to trade goods and services with one another, facilitating economic activity.
- Crucial function because it allows for specialization and division of labor, increasing productivity and efficiency.
Unit of Account
- Definition: A unit of account is a standard unit of measurement for the value of goods and services.
- Enables the valuation and comparison of different goods and services.
- Provides a common language for expressing prices and conducting transactions.
Store of Value
- Definition: A store of value is an item that retains its value over time, allowing individuals to save and invest for the future.
- Enables individuals to defer consumption and allocate resources across different time periods.
- Helps to reduce uncertainty and promotes long-term economic growth.
Test your knowledge of money and interest rates with this quiz. Explore topics such as the demand for money, the supply of money, and how central banks control the money supply and interest rates.
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