Funcations of Money

Functions of Money

XECO/212

Time Date

Money acts as a unit of account, medium of exchange, or a store of value. Describe each of these different functions.

Money serves many different purposes, a unit of account, medium of exchange and a store of value. Without our use of money we would be subject to the barter system. The barter system is where goods and services are traded for other goods and services. Having a transaction take place with equal wants and needs is far and few between when using the barter system. Money takes away these inconveniences. A unit of account sets a standard value to your currency. Some people would use camels as their currency. These camels are not the same however, if you give me 25 camels you can be giving me some young some old, some male some female. When you breakdown $25 USD into $1’s they twenty five, one dollar bills. All ones are equal to each other. The value of these dollars is assessed by the value of gold and silver. Certain things cannot be used as currency as unit of account for example, a large diamond can equal $10,000 but you break it up into one hundred pieces the value of the diamonds all together equal only $1,000. A store of value in relation to money means it can be stored somewhere and retrieved later and then used right away if deemed necessary. Goods like apples could be used as currency but could not be stored as they would rot away. Dollar bills can be stored in banks, rooms, boxes and mattresses. These are the different functions of money that we used today.

Provide an example of your use of money in each of these different functions.

There are many examples of how our money serves different functions. The USD serves as a medium of exchange. The reason it serves as a medium of exchange is because the dollar is a form of currency that replaces barter. When I go to purchase a service or good I use money to acquire it. Sometimes I would rather barter and save my money, however...