Question

1. As money has many distinct functions that make the money widely acceptable. Based on the attributes of money analyze the four key functions of money.

2. Based on your understanding explain the following with real world examples

a)             Money

b)            Inefficiency in a barter economy

Answer 1

Question 1

Key functions of money are-

i) Unit of account- Everything in the economy can be denominated in terms of money.

ii) Medium of exchange- Barter system was used to buy products that people needed but now that everything can be denominated in terms of money, transactions can be done in exchange of money

iii) Store of value- Money is the most liquid asset and it can hold its value over a period of time

iv) Standard of deferred payments- Here if you purchase goods or services on credit basis, the amount you need to pay in future can be set up today, this is an extension of unit of value.