Question

1. (a) What are the three functions of money? (b) Explain each function briefly and (c) give example per function.

You have to answer each part

Answer 1

Three Functions of Money

1. Medium of Exchange
2. Store of Value
3. Unit of Account

1) Medium of exchange : It is the medium required to exchange goods. Any goods or service can be valued at certain currency value.It has helped in making barter system obsolete. Exchange now does not depend on availability of other goods.
E.g. Money can be used to buy food, insurance, shares , etc Shows that money can be used to exchange for all type of goods and services

2) Measure of value: Value of goods and services are determined in monetary or currency terms. It has liquidity value and value of money is for lifetime.
E.g: Money stored in banks or other investments instruments increase in value which can be measured categorically

3) Unit of account : It helps in exchanging currency of different countries. It is used for accounting practices and determines GDP , GNP and other measures of national Income.
E.g: 1$ = 70.54 Indian Rupees showing money is a unit of account.

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