Question

The three functions of money are to serve as: (1) a medium of exchange, (2) a...

The three functions of money are to serve as: (1) a medium of exchange, (2) a unit of account, and (3) a store of wealth. In a small paragraph explain each of these functions.

Homework Answers

Answer #1
Money serves as a
MEDIUM OF EXCHANGE - A medium of exchange means that you can facilitate
transactions through money. You can buy and sell goods with the use of money.
UNIT OF ACCOUNT - A unit of account means that with money you can compare the
value of goods and services. In other words, you can compare the price of a television
set to the price of a refrigerator and analyse which one is more expensive.
STORE OF WEALTH - Money serves as a store of wealth. In other words, instead of owning
different kind of physical assets to be wealthy, a person can own money, since money is a store of wealth.
Money can be invested in savings accounts, stocks, bonds, mutual funds and real estate. However, if money is
not invested in any asset then the value of money depreciates because of a rise in inflation.
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