Money has three functions which are unit of account, medium of exchange, and a store of value. Unit of account is the money function in which money is used as the common benchmark to designate the prices of goods and exchange throughout the economy. Unit of account also known as measure of value means that money is the measuring unit for prices. For example a 1 liter bottle of soda costs $2 and a 2 liter bottle of soda costs $3.75. You understand this and are able to compare the prices. Money is used in exchange for the price of goods. Price is how much money is needed to complete the exchange of the goods in interest.
The next function of money is medium of exchange. This function is the function of money being excepted as payment for goods and services. Buyers get their purchased goods by giving money to the seller. The seller receives money for trade of their goods. For example a person wanting a bag of chips gives the seller money for the price of the chips. The seller receives the money in trade for the price of the chips. Money is a material that is commonly accepted as a medium of exchange. This medium of exchange takes place of the past barter system.
The last function of money is store of value. This function means that money can be used to purchase the exact same goods in the future as it can today. Once a person receives a paycheck the money that that person does not spend is place into a savings. By saving money you are able to spend some now and some later which the sense of value is stored.
You May Also Find These Documents Helpful
-
a. The main functions of money are the medium of exchange, store of value and unit of account.…
- 402 Words
- 2 Pages
Satisfactory Essays -
Money is used as a medium of exchange which simply means that money is used by buyers to purchase goods or services from sellers. We could go back to the restaurant example. The restaurant would gladly accept money for its goods and services because money…
- 269 Words
- 2 Pages
Satisfactory Essays -
Medium of Exchange The world’s current medium of exchange is money. Money solves the divisibility problem divisibility (How do you sell you half a cow? Etc.) facilitates saving (You can keep money indefinitely, but what Etc.), about foods?) and represents wealth. The Five Sector Economy The economy can be divided up into five different sectors.…
- 17846 Words
- 72 Pages
Powerful Essays -
4. One of the functions of money is as a store of value. How does…
- 714 Words
- 3 Pages
Good Essays -
Medium of exchange: Money can be used for buying and selling goods and services. If there were no money, goods would have to be exchanged through the process of barter…
- 532 Words
- 3 Pages
Good Essays -
1. Medium of exchange: because you can use it to buy the goods and services you want, everyone’s willing to trade things for money.…
- 981 Words
- 4 Pages
Satisfactory Essays -
The Dutch invented the stock exchange in Amsterdam, which acted as the first stock market in the world. Their first traded stock was for the East India company, and the idea blossom soon after that.…
- 490 Words
- 2 Pages
Satisfactory Essays -
“Money breeds money” , In other words , money creates money. Have you ever heard the expression , “You have to spend money to make money” ? Well , it’s the same approach. Dana Gioia’s poem “Money” appealed to me for this same reason. It seemed so ironic to me that the greatest necessity we need like money is recyclable. In Gioia’s poem , he pretty much summarized what we all do with money. Every stanza describes a different perspective of how we look at and spend money. The poem is basically a collection of common expressions used about money. Which is pretty unusual because authors try to avoid clichés. While reading this poem I could relate to it because as a little girl I saw my parents struggle with money and now that I’ve grown up capable of making money the poem changed my perspective of the world and how it views money.…
- 274 Words
- 2 Pages
Satisfactory Essays -
Money was generally created to replace the barter system and is used habitually in the world’s economy in exchange of goods and services. Money is used to perform four functions that are medium of exchange, unit of account, store of value, and standard of deferred payment. Medium of exchange is activated when sellers are willing to accept items in exchange of goods or services. The economy is more resourceful when one item serves as medium of exchange, such as the US dollar. Unit of account is normally used in the barter system, where each good has different prices. Once a single good is used as money, each good has one price as opposed to different prices. Unit of account gives buyers and sellers a way of measuring value in terms of money. Store of value is when money allows value to be simply stored. Conversely, it is not the only store of value. Any asset embodies store of value and value is not solidified and may increase in the future. Standard of deferred payment consists of money facilitating exchange at a given moment by providing medium of exchange and unit of account. Furthermore, it can facilitate exchange over time by providing store of value and standard of deferred payment.…
- 948 Words
- 4 Pages
Better Essays -
The functions of money are to serve as a medium of exchange, a unit of account, and a store of value. Inflation mainly affects the ability of money to serve as a store of value, since inflation erodes money's purchasing power, making it less attractive as a store of value. Money also isn't as useful as a unit of account when there's inflation, because stores have to change prices more often and because people are…
- 325 Words
- 2 Pages
Satisfactory Essays -
Unit of account: This function of money means that money is used as the common foundation to determinate the prices of goods traded throughout the economy. Unit of account, or measure of value, means money is functioning as the measuring units for prices. In other words, prices of goods are claimed in terms of a common monetary unit. Unit of account lends meaning to losses and profitability. Currencies are usually used as a unit of account but objects can also be used, such as gold or silver. Example: a dozen of eggs costs $2.00 and the price of a gallon of milk is $4.00, without the common unit account I would say that the dozen of eggs costs ½ of a gallon of milk.…
- 287 Words
- 2 Pages
Satisfactory Essays -
What are the functions of money? Is there a link between inflation and how well money fulfills each of these functions? Money has three functions. The first is a medium of exchange, an item that buyers give to sellers when they want to purchase goods and services I like the definition from Wikipedia better, an intermediary used in trade to avoid the inconveniences of a barter system. As a medium of exchange money helps to facilitate the flow of goods and services by eliminating bartering and coincidence of wants (we all want money!). The second is a unit of account, a yardstick people use to post prices and record debts. When we want to measure and record economic value we use money as a unit of account. By assigning everything a dollar value we can have a better idea of what the value of the item might be. It also helps us compare the value of similar items. The third function of money is a store of value, an item the people can use to transfer purchasing power from the present to the future. Money essentially enables us to transport value into the future. There is a link between inflation and how well money fulfills each of these functions. Inflation affects all three functions. In regards to a unit of account, inflation can cause relative prices to vary more than they would otherwise and thereby distort markets. Imagine post World War I Germany and hyperinflation. It would be hard to use the deutch mark as a unit of account because prices were increasing rapidly every day. Inflation forces a good to be priced higher than it would under on inflation. Using the deutch mark would be an ineffective way of gauging the value of item or comparing its value to another. Inflation would affect money as a store of value as well. Once again look to post W.W. I Germany. A deutch mark on Monday would be worth much more than a deutch mark on Friday pressuring people to spend while it still holds value. Inflation deteriorates moneys function as a store of value. Even today,…
- 2178 Words
- 9 Pages
Powerful Essays -
Medium of exchange is what a buyer uses to purchase either a good or service from a seller, in most cases this is going to be money. Money is an accepted medium of exchange because we know that we will be able to obtain goods and services if we have the money to purchase them. Unit of account is used to measure and record economic value. This means that we use this when the amounts will be measured in dollars and not the quantity of goods. The store of value is when someone will keep the money that they have received for a good or service and spend it in the future on a good or service for themselves.…
- 261 Words
- 2 Pages
Satisfactory Essays -
One of the roles of money is to be the unit of account in which contracts are expressed and individual incomes or firms’ profits are measured. High and fluctuating rates of inflation interfere with the performance of money as a unit of account, which is believed to be bad for the efficiency and equitable running of the economy. Inflation affects this function in two ways: different prices change…
- 678 Words
- 3 Pages
Good Essays -
Much waited changes turn out to be little more than an excuse to reward crony BJ Nottage for his party-switching antics.…
- 1018 Words
- 5 Pages
Powerful Essays