Function of money

Question 1

Name the 4 functions of money

Answer 1

• medium of exchange
• measure of value/unit of account
• store of value
• a method of deferred payment

Question 2

Medium of exchange

Answer 2

• In a system without money transactions were conducted through bartering
• goods and services traded for other goods and services
• exchanges were not always of the same value/ people didn’t always get what they want - posed a problem
• has to be a double coincidence of wants
• money eliminates this problem

Question 3

Measure of value/ unit of account

Answer 3

• Money provides a means to measure the relative value of different goods and services, puts a value on labour
• e.g. gold vs table

Question 4

Store of value

Answer 4

• Money has to hold its value to be used as a method of payment.
• It can be kept for a long time without expiring
• However quantity of goods and services that can be bought with that money fluctuates slightly with the forces of demand and supply

Question 5

A method of differed payment

Answer 5

• Money allows for debt to be created
• People can therefore pay for things without using money in the present, pay later
• relies on money storing its value