Function of Money

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As the word money is used in everyday conversation, it can mean many things, but to economists it has a very specific meaning. It is defined as anything that is generally accepted in payment for goods or services or in the repayment of debts. Certainly, money is considered as the most important financial asset which is commonly used in the economy. Cash or bills, coins and accounts at banks are considered as money. Whether money is currency or checking account, it has three primary functions in the economy: as a medium of exchange, a unit of account, and a store of value.

Firstly, in almost all market transactions in our economy, money in the form of currency or checks is a medium of exchange or we can say it is used to pay for goods and services. The use of money as a medium of exchange promotes economic efficiency by eliminating much of the time spent in exchanging goods and services. In fact, without money the price of every goods and services that we want to trade would have to be expressed in terms of exchange ratios. Moreover, buyers and sellers need to have an exact coincidence of wants which means that we have to find a person who has the goods or services which we want and that person also wants the products that we have to offer, so we will be difficult and time consuming, and the time we waste on trying to exchange products is called a transactions cost. On the other hand, after the present of money in our economy, we can sell products that we have so as to get money; then we can use that money to buy products that we need. According to that, money support economic efficiency by reducing much of the time waste on exchanging goods or services and permits us to trade with each other uncomplicated.

The second role of money is to provide a unit of account which means that it is used to measure value in the economy. Normally, we measure the values of goods and services in terms of money. Imagine how hard it...
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