What is the function of money?

Answer 1

The function of money serves as the generally accepted method of trade for a product or service. Where money is not exchanged for a product or service, usually some other kind of deal is made but the function of money is simply an idealistic object which can be traded.

The main functionThe main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value, and occasionally, a standard of deferred payment

money acts as a medium of exchange

it helps to avoid double coincidence of wants
Money is used for trading [buying, selling, payment for service, etc] In today's time, money is used to determine the prosperity, capability, and stability of the economy of a country, region or a certain market. It also helps in determining the competitiveness on the market.
A medium of exchange-money makes the exchange of goods easier and makes barter necessary.

A measure of value-money can be used to state prices of goods

A store of value-money can be saved,whereas to save goods maybe inconvenient or impossible.

A standard for postponed payments-money can be earned at one time and spent at another
Student Resource 4.2

Reading: The Function of Money

Money flows in and out of our hands on a daily basis in a variety of different ways. But what defines money and what is its true function? Money can be categorized as having three general functions: a medium of exchange, a unit of account, and a store of value.

Money can be characterized in the following ways:

• Durable: Money should be able to last a long time and should be able to withstand many exchanges and transactions from person to person and business to business.

• Portable: Money should be easy to carry around. Consumers must be able to transport their money around from shop to shop with ease.

• Scarce: Money needs to be scarce enough to be valuable. Money needs to retain its value.

• Divisible: Money needs to be able to be divided into small units. Meaning that consumers must be able to get their change after making a purchase.

Bartering is a type of trade in which goods or services are exchanged for other goods and/or services. Bartering dates back to over 100,000 years ago. Stones, shells, livestock, and tea leaves have all been used as money during one time or another. Before money was created people found ways to obtain the goods and services that they needed through bartering.

After a while bartering proved to be inefficient, inconvenient, and unsuccessful, and the evolution of money began. From shells to stones, from livestock to tea leaves, money gradually evolved into what it is today.

The most important job of money is to serve as a medium of exchange. Money makes trading easier by replacing the barter system with a system that involves currency, coins, or checks. Money makes it faster and easier to buy and sell things. As a medium of exchange, everyone must have faith that everyone else will accept it for their goods and services.

Money also encourages specialization and efficiency. People who are really good at making a product can just sell their product for cash in order to get what they need, rather than try to make other products that they are not very efficient at making. In this way, individuals can specialize in one area and increase productivity with that item.

Money is a store of value. As a store of value, money can be held until an individual chooses to exchange it for a good or service. Money makes it easier for people to save and then make purchases in the future.

C.A unit of accountD.A storehouse of valueE.A medium of account
the functions of money are:

1. medium of exchange- used to facilitate transactions. it avoids the inefficiencies of barter such as the double coincidence of wants problem by serving as a medium of exchange, it is accepted by all parties, in all transactions regardless of whether they desire each others goods and services.
2. unit of account- provides the common measure of value for the goods and services being exchanged. knowing the price of the goods and services helps both the supplier and purchaser to make decisions about how much to supply and how much to purchase. therefore, it allows the interpretation of prices, costs and profits so that an entity can monitor its performance and its shareholders can have an idea of its future profitability.
3. store of value- it must be able to hold its value over time. if it could not be stored for a period of time and still remain valuable in exchange then it would not have solved the double coincidence of wants problem and it would not be adopted as a medium of exchange. as a store of value money is not unique. many other stores exist such as land, works of art, stamps etc. however money is the most liquid store since it is readily accepted anywhere. furthermore it is an easily transported store of value that is available in a number of convinient denominations.

Answer 2

Money serves as a medium of exchange. Example: I work in a lightbulb factory. Today I get paid in lightbulbs, because there's no cash. I get 10 lightbulbs. I'm thirsty, so I take them to a bar and try and swap them for beer, but the bartender doesn't want lightbulbs, he wants a snowmobile. So I find someone with a snowmobile and try and swap it for my lighbulbs, but they want a flatscreen TV. This is literally how a moneyless society works. If I get paid in cash, I can give that to the barman and get a beer. He can give it to the guy with the snowmobile. The guy with the snowmobile can then take the cash down to Walmart and buy a flatscreen TV. Easy.

Answer 3

Money is the universal trade currency.

If for example I grew turnips and wanted carrots, I might go to the carrot farmer and trade turnips for carrots, BUT if he doesn't want any turnips, then I would have to go through a long chain of trade until I finally had my carrots.

Alternatively, I could use the money I obtained from selling turnips yesterday and buy myself some carrots with it, nice and simple.

Answer 4

The four functions of money are a medium of exchange, a messure of value, a store of value and a standard of value for future payments.