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Questions and Answers
What are the three functions of money?
What are the three functions of money?
- Medium of exchange, barter system, investment tool
- Savings account, checking account, currency exchange
- Medium of exchange, unit of account, store of value (correct)
- Credit card, debit card, cash
What is the definition of 'medium of exchange'?
What is the definition of 'medium of exchange'?
- An asset that holds wealth
- A measure of economic value
- A direct trade of goods and services for other goods and services
- An asset used in purchasing goods and services (correct)
What is the definition of 'unit of account'?
What is the definition of 'unit of account'?
- A direct trade of goods and services
- A measure of wealth
- An asset used in purchasing goods and services
- A basic measure of economic value (correct)
What is the definition of 'store of value'?
What is the definition of 'store of value'?
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Why is the function of money as a medium of exchange crucial?
Why is the function of money as a medium of exchange crucial?
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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.
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