Question

Give an example of an item that has been used as money (this can be a real-world example, an example from a movie or a TV show or an example from a book). Discuss how this item fulfilled the four functions of money: medium of exchange, unit of accounting, store of value, and standard of deferred payment.

Answer 1

Gold can be used in place of money

Medium of Exchange A medium of exchange is an instrument which can be used for sale, purchase or trade of goods between parties and should be accepted all over world. Just like money gold can serve this purpose.

Unit of accounting A unit of account is a standard monetary unit of measurement used for describing the value of something.Unit of account should be able to standardize, should have some sort of stability and can be easily broken into components of equal value without loosing value. So, Gold like money can be used.

Store of Value. This refers to asset that maintain its value without depriciating. Gold is good stores of value as its shelf lives is essentially perpetual or never ending.

Standard of Deferred Payment.Deferred payments mean those payments which are to be made in the future. If a loan is taken today, it would be paid back after a period of time. Just like money performs this function of standard for deferred payments because its value remains more or less stable, same can be applied to gold.