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Questions and Answers
What is one of the primary roles of money as a medium of exchange?
What is one of the primary roles of money as a medium of exchange?
- It allows for the quick satisfaction of wants and needs. (correct)
- It causes inflation in the economy.
- It ensures everyone has the same amount of wealth.
- It eliminates the need for trade.
How does money function as a unit of account?
How does money function as a unit of account?
- By providing a standard measure to evaluate and compare the worth of items. (correct)
- By ensuring that all goods are exchanged for the same product.
- By serving as an alternative to barter systems without value.
- By allowing people to store their goods in a physical form.
What is meant by the term 'store of value' in relation to money?
What is meant by the term 'store of value' in relation to money?
- All goods are inherently valuable over time.
- Money cannot lose its purchasing power.
- Money must be stored in physical banks.
- Money can maintain its value over time and can be saved. (correct)
What is a challenge associated with perishable goods in a barter system?
What is a challenge associated with perishable goods in a barter system?
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Why is it necessary for individuals with perishable goods to convert them into money quickly?
Why is it necessary for individuals with perishable goods to convert them into money quickly?
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Study Notes
Medium of Exchange
- Money facilitates quick and easy exchanges between individuals.
Coincidence of Wants
- Money addresses the issue of "coincidence of wants" by allowing individuals to acquire goods and services they desire without needing to directly barter for them.
Unit of Account/ Value
- Money acts as a common measure of value, simplifying the process of comparing prices between different goods and services.
- Money provides a standard measure for transactions, ensuring consistency and facilitating economic activity.
Store of Value
- Money serves as a store of value, allowing individuals to hold onto it and use it later, unlike perishable goods that have a limited lifespan.
- Perishable goods, like fresh produce from a garden, have a short shelf life, requiring individuals to sell them quickly or risk losing their value. Money, however, can be stored and its value retained over time.
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