![]() ![]() Unit of accountĪnother essential function of money is the unit of account. Imagine having money that today can get you ten apples, but no one accepts it the following day, and your purchasing power disappears into thin air. For it to be considered money, it must have value for a long period, meaning that you can still buy goods and services with it. If you have an asset that will decrease in value in a short time, it can't be considered money. ![]() For one asset to be considered money, it has to have value over time. Store of value refers to the ability of an asset to hold its purchasing power over time. In contemporary economies, the most common means of trade is cash. Further, all parties involved in the transactions must accept it. For a system to operate as a medium of exchange, it must represent a standard of value. Functions of money - StudySmarter Originals Medium of exchangeĪ medium of exchange is an intermediate tool used to enable the sale, purchase, or transfer of products between parties. Any asset that has all of the following functions is considered to serve as money.įigure 2. Functions of Moneyįunctions of money include the medium of exchange, store of value, and unit of account. Otherwise, all of our money would quickly lose value, and vendors would not want to accept it for payment purposes. People need to trust that money is not likely to be counterfeit. Transportability is money's ability to be easily carried around, which makes it possible for individuals to perform transactions when they go out. $100 equals two $50 notes, and both have the same value. This refers to money's ability to be divided into smaller parts while all the smaller parts have value. Money should and must be able to retain its durability. ![]() Refers to the physical ability of money to withstand damage, decomposition, or change of any sort. Characteristics of money - StudySmarter Originals Durability The four main characteristics of money are durability, divisibility, transportability, and non-counterfeit.įigure 1. It will be tough, almost unlikely, for this transaction to take place. You would have to acquire the milk and find a way to deliver it to China without it spoiling. Imagine if you had to exchange another commodity such as milk for an iPhone case from China. The cheap goods you buy on Amazon from China can be bought because you give US dollars in return. There is more than one way to measure the money supply. It contains not only the most liquid forms of money but also financial assets and other types of money that are less liquid than cash or checkable deposits. Now, the money supply is what we call the total value of money in the economy. The more liquid the money is, the easier it is to perform transactions. These two types of money, currency and checkable deposits, are the most liquid forms of money. You have checkable deposits if you have a bank account from which you write checks that the receiver then cashes out. Usually, the most common types of money are the currency in circulation, which refers to the cash and coins in the hands of the general public, and any checkable deposits. Although there are cases where you can exchange a good in return for another good, in most cases, the money as we know it today is the currency in circulation. Hence, we can say that the definition of money depends on the type of transaction you're performing. If you happen to have any foreign currency, you won't likely be able to purchase the good or service using the foreign currency, and instead, you will have to go to a currency exchange and exchange the foreign money into US dollars. When you go to a grocery store and try to buy apples, the cashier will ask you to pay in US dollars. Sources of Revenue for State Government.Sources of Revenue for Local Government.Monetary Policy Actions in the Short run.Long-Run Consequences of Stabilization Policies.Expansionary and Contractionary Fiscal Policy.Factors Influencing Foreign Exchange Market.Comparative Advantage vs Absolute Advantage.Expansionary and Contractionary Monetary Policy.Equilibrium in the Loanable Funds Market. ![]()
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