2 functions of money?

Question

what are two functions of money??, i need to know for my yr 9 commerce exam tomoz..

Answer 1

We say traditionally that money has four major functions. It is a

Medium of exchange

Whatever people usually give in exchange for the things that they buy is the medium of exchange. As we have seen, this is the function that defines money.

Unit of account

The unit of account is the unit in which values are stated, recorded and settled. The differences between this and the medium of exchange may seem subtle, but there are a few cases in which the unit of account is different from the unit in which the medium of exchange is expressed. In Britain a few decades ago, Guineas were often used as the unit of account, while the medium of exchange was expressed in Pounds. Both Guineas and Pounds in turn could be expressed in shillings -- the Pound was 20 shillings and the Guinea was 21 shillings. (British currency has since been redefined).

Standard of deferred payment

This is the unit in which debt contracts are stated. Deferred payment means a payment made in the future, not now. Here, again, it is usually the same as the medium of exchange, but not always. During periods of inflation, people may accept paper money for immediate payment, but insist on some other medium, such as real goods and services or gold, for deferred payment -- because the medium of exchange would lose much of its value in the meanwhile.

Store of value

Again, this is something that people keep in order to maintain the value of their wealth. Again, while it would usually be the same as the medium of exchange, in inflationary times other media might be substituted, such as jewelry, land or collectable goods. In this sense, money is "set aside" for the future.

Hope you did well on your exam!