Unit 11: Money and its functions Flashcards
What is the concepts of money?
Money is anything which is generally accepted or regulated by law as a medium of exchange.
As a medium of exchange, how is money used?
As a medium of exchange, money is used to make payments for goods & services and settlements for debts.
As a measure of value, how is money used?
As a measure of value, money is used to measure values of goods & services in unit of account of each country, for example, in USA in dollars, in VN in VND. It is more convenient to use one currency as a medium of exchange as well as a unit of account.
As a store of value, how is money used?
As a store of value, money is used to make purchases in the future/to save for future use. Money isn’t the best store of value because money reduces its value over time due to inflation. Better stores of value such as gold, estate, strong foreign currencies, investments.
As a standard of deferred payment, how is money used?
As a standard of deferred payment, money is used to make payments over time.
What is installment buying?
Installment buying means to buy something on credit.
Does money function as the best store of value? Why?
Money isn’t the best store of value because money reduces its value over time due to inflation. Better stores of value such as gold, estate, strong foreign currencies, investments.
Among 4 functions of money, what is the most important one? and why?
Among 4 functions of money, medium of exchange is the most important function of money. If only money functions as a medium of exchange, it has 3 other functions. As a medium of exchange, money has helped the trading process to be much simpler, cheaper and much more convenient.
Talk about 4 functions of money.
Four functions of money are: medium of exchange, store of value, measure of value, standard of deferred payment.
- As a medium of exchange, money is used to make payments for goods & services and settlements for debts.
- As a measure of value, money is used to measure values of goods & services in unit of account of each country, for example, in USA in dollars, in VN in VND. It is more convenient to use one currency as a medium of exchange as well as a unit of account.
- As a store of value, money is used to make purchases in the future/to save for future use. Money isn’t the best store of value because money reduces its value over time due to inflation. Better stores of value such as gold, estate, strong foreign currencies, investments.
- As a standard of deferred payment, money is used to make payments over time.
What are differences between commodity money and token money?
Commodity money
The material value of a commodity money is equal to its monetary value/ its purchasing power.
Ex: gold coins, silver coins.
Token money The monetary value of token money greatly exceeds its material value. It is safer, more convenient to use token money as a means of payment, and it is cheaper to produce token money. Ex: letter of credit, plastic cards, E-money, etc.
SUMMARY
There are some main ideas in Unit 11: the concept of money, 4 functions of money and 2 main types of money.
Firstly, money is anything which is generally accepted or regulated by law as a medium of exchange.
Secondly, 4 functions of money are medium of exchange, measure of value, store of value and standard of deferred payment. Among 4 functions of money, medium of exchange is the most important function of money. If only money functions as a medium of exchange, it has 3 other functions. As a medium of exchange, money has helped the trading process to be much simpler, cheaper and much more convenient.
Finally, there are some difference between 2 main types of money: the material value of a commodity money is equal to its monetary value/ its purchasing power. In the other hand, the monetary value of token money greatly exceeds its material value. It is safer, more convenient to use token money as a means of payment, and it is cheaper to produce token money.
