Question

Generally speaking, money has 3 functions in the economy: medium of transactions, storage of value, and unit of account. Give a concrete example of each (e.g., who are the agents, what are they doing, how does money help).

Answer 1

Examples :

Medium of exchange- In a scenario where a peasant wants to buy some commodity from a market, he will use money to get that particular commodity. Here, money is used as a medium of exchange and is used to buy the commodity. Since money is a legal tender, it is a standard means for exchange.

Storage of value- Now, the same peasant wants to save some weath for future use, he would save the money. Since money is a standardised value, it acts as a store of value, whereby it retains the purchasing power of the peasant.

Unit of account- Money helps the peasant to keep track of his expenses, income, wealth, etc which is why money is also acts as a unit of account, a standard measurement.