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FUNCTIONS OF MONEY

Money is something that people use every day. We earn it and spend it but do not often think much about it. Economics define money as any good that is widely accepted as final payment for goods and services. Money is so common that we rarely think about what it is. The characteristics of money include durability, divisibility, portability, and scarcity. Money acts as a unit of account, medium of exchange, and a store of money.

First money is a store of value. Store of value is any form of commodity, asset, or money that has value and can be stored and retrieved over time. Possessing a store of value is an underlying basis for any economic system, as some medium is necessary for a store of value in order for individuals to engage in the exchange of goods and services. As long as a currency is relatively stable in its value, money (such as dollar bill) is the most common and efficient store of value found in an economy. If I work today and earn 25 dollars, I can hold on to the money before I spend it because it will hold its value until tom tomorrow, next week, or even next year. In fact, holding money is a more effective way of storing value than holding other items of value such as corn, which might rot. Although it is an efficient store of value, money is not a perfect store of value. Inflation slowly erodes the purchasing power of money over time.

Second money is a unit of account. It economics the function of money that enables the user to keep accounts, value, transactions, etc. you can think of money as a yardstick the devise we use to measure value in economic transactions. If I shopping for a new computer, the price could be quoted in terms of t-shirts, bicycles, or corn. So, for insurance, my new computer might cost me 100 to 150 bushels of corn at today’s prices, but I would find it most helpful if the price were set in terms of money because it is a common measure of value across the economy.

Third money is a medium of exchange. This means that money is widely accepted as a method of payment. When I go to the grocery store, I am confident that the cashier will accept my payment of money. In fact, U.S. paper money carries this statement: “This note is legal tender for all debts, public and private”. This means that the U.S. government protects my right to pay with U.S. dollars. The function of money as a medium of exchange solves all the difficulties of the barter system.

When money is uses to intermediate the exchange of goods and services, it is performing a function as a medium of exchange. It there by avoids the inefficiencies of barter system, such as the “double coincidence of wants” problem. According to all these function my views of money is totally changed from the beginning to now. Now I know that how to communicate with money. By communicating with moneys we can be wealthy more than we did earlier. This make easier to all our life.