(A1) Functions and Roles of Money Flashcards
What are the 4 functions of money?
- Unit of Account
- Means of Exchange
- Store of Value
- Legal Tender
Unit of Account
Money serves as the common bases of comparisons that people use to present price and record debts
It provides a measure by which we can value different goods and services
Mean of Exchange
Where we uses notes and coins rather than barter as a medium of exchange
Store of Value
Money acts as a store of value overtime meaning that someone can spend later in the future knowing that it has a future value
Legal Tender
Money is an accepted form of payment for goods and services
What does money avoid the problems of?
Avoids the problems of barter such as double coincidence of wants
What is a double coincidence of wants?
A situation where both parties hold an item needed by the other to fulfill their demand
Why is a double coincidence of wants bad?
It is inefficient and affects the specialization of the division of labor
What is the specialization of the division of labor?
When production or service process are split into several set tasks
What is a benefit of money being an accepted medium of exchange?
Credit can be offered so that payment can take place at a future date
What are factors that affect the role of money?
- Personal attitudes towards money
- Culture (including religious and ethical beliefs)
- Life Events
- External Influences (Inflation)
- Interest Rates
Why is expenditure planned?
Expenditure is planned to;
* Control costs
* Avoid getting into financial difficulties
* Avoid bankruptcy
* To have insurance
What are the benefits of planning expenditure?
- Good credit rating
- Savings for emergencies
What are the risks of not planning expenditure?
- Getting into debt
- Poor credit rating
- Repossession of unpaid goods
- Failure to pay loans
What is a credit limit?
The max amount of money that can be borrowed
