Functions of Money

Topics: Money, Store of value, Currency Pages: 1 (380 words) Published: July 12, 2010
Money as a medium of exchange is an item that buyers give to sellers when they want to purchase goods or services. An example of how I use money as a medium of exchange is simple. Every week when I do my grocery shopping, I give the cashier money, whether it is in the form of cash, or debit card, in exchange for groceries. Money as a unit of account is the yardstick people use to post prices and record debt. When we want to measure and record economic value, we use money as the unit of account. The unit of account function of money refers to the fact that the prices of different goods are expressed in a common monetary unit. For example, prices in the US are expressed in dollars. An example of this function on money might be that the cost of bread is two dollars per loaf and the price of wine is six dollars per bottle. Without a common unit of account, we would say that a loaf of bread costs one-third bottle of wine and a bottle of wine costs three loaves of bread. A store value of money is an item that people can use to transfer purchasing power from the present to the future. When a seller accepts money today in exchange for a good or service, that seller can hold the money and become a buyer of another good or service at another time. Money is not the only store of value in the economy, for a person can also transfer purchasing power from the present to the future by holding other assets such as nonmonetary assets. An example of store of value as a nonmonetary transaction would be cost reduction. My fiancé owns an auto detailing business. He charges the car dealerships a reduced rate from $250 to $150 per car for a full detail and from $10 to $6 per car for a wash and wax in return that the dealership keeps giving him their business per a contracted deal. An example of money as a store of value would be my fiancé excepting money from customers in return for his services, then using the money to reinvest in supplies for his business, and pay his employees.
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