Question

Explain the ‘unit of accounts’ function of money. How has it solved the related problem created by barter?

Explain the significance of the 'Unit of Account' function of money

Answer 1

Unit of Account

It is the monetary expression of the market value of goods and services. These goods are measured in terms of gram, litre and metre. This common unit of measurement enables the buyer and seller to compare the value of goods in the market. This enhances the activities of buying and selling in the market.

The common device to measure goods is completely absent under the barter system. The sale and purchase of goods occur at the same time. Their sale and purchase values also remain equal at that point. After existence of money, a person can purchase or sell goods with cash at any point of time. Thus, the act of purchase and sale has been separated.

The introduction of money resulted in the end of the barter system where the value of goods are measured in terms of money and are hence progressed with market activities.