Functions of Money in Economics

The video explores the essential roles of money in the economy, highlighting its four main functions: medium of exchange, store of value, unit of account, and standard of deferred payment. Money facilitates trade by eliminating the need for a double coincidence of wants, allows wealth to be stored over time despite inflation, provides a means to compare the value of goods and services, and enables future payments through contracts. Understanding these functions helps appreciate money's significance in modern society.

What is one of the main roles of money in the economy?

• To create wealth

• To eliminate trade

• To serve as a medium of exchange

• To increase inflation

How does money as a medium of exchange benefit trade?

• It eliminates the need for a double coincidence of wants

• It increases the price of goods

• It reduces the variety of goods available

• It complicates the trading process

What is required for a barter system to work effectively?

• A single currency

• A double coincidence of wants

• A high level of inflation

• A large variety of goods

Why is money considered a store of value?

• It can be exchanged for any good

• It increases in value with inflation

• It retains value over time

• It can be used immediately

What effect does inflation have on money as a store of value?

• It has no effect

• It increases the value of money

• It decreases the value of money

• It stabilizes the value of money

Why can't a baker store his wealth in bread?

• Bread is too valuable

• Bread is a form of currency

• Bread will go stale

• Bread increases in value over time

How does money function as a unit of account?

• By facilitating future payments

• By storing wealth

• By allowing value comparison of goods and services

• By increasing the price of goods

What does money as a standard of deferred payment allow?

• Immediate payment for goods

• Reduction in trade

• Future payment for goods and services

• Increase in the value of goods

Which function of money is often overlooked because it combines other functions?

• Store of value

• Standard of deferred payment

• Unit of account

• Medium of exchange

What ensures that the amount on an invoice reflects the value of a service?

• Store of value

• Unit of account

• Standard of deferred payment

• Medium of exchange