The Functions of Money Flashcards
What is money?
Anything that is normally acceptable in the payment of goods and services, or of a debt.
Name the 4 functions of money
- A medium of exchange
- A measure of value
- A store of value
- A method of deferred payment
Define ‘a medium of exchange’
Enables buying and selling of products, making exchange easier, avoids a DOUBLE COINCIDENCE OF WANTS, eliminates the need to barter.
Define ‘a measure of value’
Enables value to be placed on products so can be bought and sold with ease. Money creates unit of measure that enables comparisons between relative value of products.
Define ‘a store of value’
Convenient way of storing wealth, spent at a later date. Money will hold its value in the short term as long as inflation remains low.
Define ‘a method of deferred payment’
Enables borrowing and lending. A price is usually set for borrowing and lending; this is the rate of interest.
Name the different forms of money
- Notes and coins
- Current accounts
- Time deposits (near monies)
Name the forms of money ‘a medium of exchange’ comes under
- Notes and coins
- Current accounts
Name the forms of money ‘a measure of value’ comes under
- Notes and coins
- Current accounts
- Time deposits (near monies)
(ALL FORMS)
Name the forms of money ‘a store of value’ comes under
- Notes and coins
- Current accounts
- Time deposits (near monies)
(ALL FORMS)
Name the forms of money ‘a method of deferred payment’ comes under
- Notes and coins
Current accounts
What is near money?
Assets which fulfil some but not all the functions of money.
What forms of money do near monies act as?
Measure of value and store of value
What can near money be converted into?
A medium of exchange quickly and at little cost.
What is liquidity?
The ease with which an asset can be converted into money without loss of value
What are money substitutes? (examples)
Anything which can be used as a medium of exchange but which is NOT a store of value e.g. credit cards and charge cards
Describe the DOUBLE COINCIDENCE OF WANTS
Finding someone to exchange needs with, nowadays, don’t have to find someone with the same wants so use money as the exchanging factor instead.
What is the value of money influence by? (3 things)
- Interest rates
- Amount of money printed
- Inflation rates
What are time deposits a type of?
Near money
Name some examples that count as ‘money’?
Cash and current account deposit (balance)
Name some examples that count as ‘Near money’ and why?
Savings accounts due to interest rates and high restrictions
Name some examples that count as ‘Non-money financial assets’?
Shares
Name some examples that count as ‘Non-money physical assets’?
Car, House, Gold necklace
Name something that is not an asset?
A credit card
