Answer the following question.
Explain any two secondary functions of money.
Solution
(i) Store of value: In order to be a medium of exchange, money must hold its value over time; that is, it must be a store of value. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. As a store of value, money is not unique; many other stores of value exist, such as land, works of art, and even baseball cards and stamps. Money may not even be the best store of value because it depreciates with inflation. However, still, money is used as a store of value as:
(i) It is more liquid than most other stores of value.
(ii) It is readily accepted everywhere.
(iii) It is easy and economical to store as its storage does not require much space.
(iv) Unit of account: Money also functions as a unit of account, providing a common measure of the value of goods and services being exchanged. Knowing the value of the price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase.
In the absence of the common measure, the seller has to express the value of his goods in all other goods. For example, if you want to sell your horse you have to express its value.
1. Horse = 2 cows
1. Horse = 5 bags of wheat
1. Horse = 20 kg of iron
