Question

Explain the three roles money can play in an economy. (medium of exchange, measure of value, store of value)

Answer 1

Answer:

Functions of Money

Money has three primary functions. It is a medium of exchange, a unit of account, and a store of value: ... Unit of Account: It is a standard numerical unit of measurement of market value of goods, services, and other transactions.

Explanation:

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Answer 2

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Medium of Exchange: When money is used to intermediate the exchange of goods and services, it is performing a function as a medium of exchange.

Unit of Account: It is a standard numerical unit of measurement of market value of goods, services, and other transactions. It is a standard of relative worth and deferred payment, and as such is a necessary prerequisite for the formulation of commercial agreements that involve debt. To function as a unit of account, money must be divisible into smaller units without loss of value, fungible (one unit or piece must be perceived as equivalent to any other), and a specific weight or size to be verifiably countable.

Store of Value: To act as a store of value, money must be reliably saved, stored, and retrieved. It must be predictably usable as a medium of exchange when it is retrieved. Additionally, the value of money must remain stable over time.

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