Question

Write in detail about the various functions of money.

Answer 1

When money replaced the barter system, a lot of practical issues were solved. Money acts a medium of exchange, a unit of measurement, a store of value, and a standard of deferred payments. It plays an important role in transactions.

1. Medium of Exchange:
   Money should be accepted liberally in exchange of goods and services in a country.
2. Unit of Account:
   Money should be the common, standard unit of calculating a country’s total consumer goods, products, services, etc. For example, if a book costs ₹ 50, it means that the price of the book is equal to 50 units of money. Money is used to measure and record financial transactions in a country.
3. A Store of Value:
   Money is used as a store of purchasing power. It can be used to finance future payments.