Question

Explanation of four function of money

Answer 1

• First, money serves as a medium of exchange, which means that money acts as an intermediary between the buyer and the seller.
• Second, money must serve as a store of value.Holding money is a much easier way of storing value.This function of money does not require that money is a perfect store of value. In an economy with inflation, money loses some buying power each year, but it remains money.
• Third, money serves as a unit of account, which means that it is the ruler by which other values are measured.
• Finally, another function of money is that money must serve as a standard of deferred payment.This means that if money is usable today to make purchases, it must also be acceptable to make purchases today that will be paid in the future. Loans and future agreements are stated in monetary terms and the standard of deferred payment is what allows us to buy goods and services today and pay in the future.

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