The Functions of Money

Question 1

What are the 5 functions of money?

Answer 1

1) Medium of exchange: money can be used to buy goods and services.
2) Measure of value: money can be used to express the relative value of goods and services in a consistent way.
3) Store of value: money can be stored for future use.
4) Method of deferred payment: money can be used as a source of credit/borrowing.
5) Transfer of value: money is easy to transfer, both physically and electronically.

Question 2

What is the most liquid asset?

Answer 2

Money.

Question 3

What is liquidity?

Answer 3

How easily an asset can be exchanged into cash.

Question 4

What is marginal utility?

Answer 4

The additional satisfaction a consumer gains from consuming one more unit of a good.

Question 5

What are the 4 forms of money in an economy?

Answer 5

1) Money substitutes: e.g. credit cards.
2) Near monies: e.g. savings accounts.
3) Non-money financial assets: e.g. shares and stocks.
4) Money in current accounts: cash can be withdrawn and transferred between accounts through e-commerce, debit cards, check books, etc.