4.3 Definition, Measurement, and Functions of Money

Functions of Money

There are three primary functions of money within the economy.

Medium of Exchange: Money is used to facilitate transactions by providing a universally accepted means of payment. Instead of bartering goods and services directly, money allows people to buy and sell using a common standard.

Unit of Account: Money provides a consistent measure of value, which simplifies the process of comparing prices and valuing goods and services. It helps in setting prices and making economic decisions.

Store of Value: Money preserves value over time, allowing individuals to save and defer consumption. For money to effectively store value, it needs to maintain relatively stable purchasing power.