Concept explainers
The Various functions of money is to be determined.
Explanation of Solution
There are basically four key functions provided by money for an economy:
(1) medium of exchange,
(2) unit of account,
(3) store of value, and
(4) standard of deferred payment.
Medium of exchange states that the money is used to carry out transactions.
Unit of account is also known as a measure of value, which means that the prices are to be stated in the monetary terms.
Store of value states that the value and the fulfillment of needs and wants that can be preserved over time using the money.
Standard of deferred payment states that the payments to be made in future, such as paying off a loan, are also stated in monetary terms.
Medium of exchange:
States what we give in exchange for all that we buy is regarded as a medium of exchange.
This is regarded as the function with the help of which the term money is defined.
For example: you buy a purse in exchange for $1.
Unit of account:
The unit of account is defined as a unit in which the values are recorded, stated and settled. The basic comparison between this and the medium of exchange may seem slight, but there are certain cases where the unit of account is regarded as different from the unit in which the medium of exchange is expressed.
A few decades ago in Britain 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).
Store of value:
People keep in order of maintaining the value of their wealth. Again, while it would usually be regarded as same as the medium of exchange, but in the times of inflation other media might be substituted, such as land, jewelry, or collectable goods. This means that the money is "set aside" for the future use.
ex. today we are having worth 1000 dollars in actual money, but considering inflation where dollars is becoming worthless, We may try to substitute (invest) in land or jewelry on the assumption that these goods will not
Standard of deferred payment:
Is defined as the unit for stating the debt contracts. Deferred payment is defined as a payment which is to be made in the future, not in the present. Here, also it is regarded as the same to that of the exchange medium, but not every time.
During the time of inflation, people may accept the paper money for their instant payment, but insist on some other mediums, such as gold or real services and goods for the deferred payment.
For example- assuming $ is unpredictable, we come in to a contract in where there is a promise to build a house, but the time taken is for the house to build is 3 years. We enter in to a debt contract where the payment is to be made upon completion. Since it is, 3 years from present, we state in the contract that you pay me in Gold in XX troy ounce because $ at present is very unsteady.
Money is defined in terms of various services or functions that it performs. One of the most basic functions is that it serves as an exchange medium, as a unit of account and as a store of value. Money's most significant function is regarded as an exchange medium which facilitates the transactions.
Want to see more full solutions like this?
- X Apex Learning Courses public activity 003002 assessment K! Kahoot! 11.3.2 Quiz: Specialization Question 5 of 10 Which term describes a business's decision to focus on producing a small number of products? A. Opportunity cost B. Specialization C. Voluntary exchange D. Self-sufficiency PREVIOUS SUBMITarrow_forwardApex Learning Apex Learning Courses leaming.com/public/activity/1003002/assessment QQuizlet K! Kahoot! 1.3.2 Quiz: Specialization Question 5 of 10 Which term describes a business's decision to focus on producing a small number of products? OO A. Opportunity cost B. Specialization C. Voluntary exchange D. Self-sufficiency PREVIOUS SUBMITarrow_forwardnot use ai pleasearrow_forward
- Before the Civil War, the South traded with the North and with England. The South sold cotton and bought manufactured goods and food. During the war, one of President Lincoln's first actions was a blockade of the ports in the South to prevent this trade. The South had to increase its production of munitions and food. Draw a point to show the South's production point prior to the Civil War. Label it 1. Draw a point to show the South's consumption point prior to the Civil War. Label it 2. During the war, the South's factors of production were severely depleted and its production possibilities decreased. Draw a curve that shows the effects of the Civil War on the South's PPF. Label it PPF₁. Draw a point to show the South's production point during the Civil War. Label it 3. During the war, the South did not engage in trade. Draw a point to show the South's consumption point during the Civil War. Label it 4. 100 80- 60- Other goods and services (units) ☑ 40- 20- 200 400 600 PPF 800 1000…arrow_forwardSuppose that a paper mill "feeds" a downstream box mill. For the downstream mill, the marginal profitability of producing boxes declines with volume. For example, the first unit of boxes increases earnings by $10, the second by $9, the third by $8, and so on, until the tenth unit increases profit by just $1. The cost the upstream mill incurs for producing enough paper (one "unit" of paper) to make one unit of boxes is $3.50. Assume the two mills operate as separate profit centers, and the paper mill sets the price of paper. It follows that the marginal profitability of boxes represents the highest price that the box division would be willing to pay the paper division for boxes.. Furthermore, assume that fixed costs are $0 for the paper mill. The following table summarizes the quantity, total revenue, and marginal costs from the perspective of the paper mill for selling paper to the box mill at various prices. In the following table, fill in the marginal revenue, total cost, and total…arrow_forwardPlanes frequently push back from the gate on time, but then wait 2 feet away from the gate until it is time to queue up for takeoff. This increases fuel consumption and increases the time that passengers must sit in a cramped plane awaiting takeoff. The following table shows the pay schedule for the flight crew. Pay Per diem Holding pay per hour Flight Attendant Captain First Officer $3 $3 $3 $20 $20 $20 Hourly wage (after push back) $38 $184 $50 Per diem pay indicates how much the flight crew earns once it checks into the airport. Holding pay indicates how much the flight crew earns after it loads the plane. Hourly wage indicates how much the flight crew earns after it pushes back from the gate and turns on the beacon. In this scenario, who does not have an incentive to push back from the gate as early as possible? Check all that apply. Captain Flight attendants Passengers First officer True or False: Allowing the airline to decide when to push back from the gate would reduce…arrow_forward
- This Wendy’s commercial confuses the notions of appreciation and consumer surplus. Recall that consumer surplus is the difference between what a consumer is willing to pay for a good and what they actually pay for it. According to standard economic theory, consumer surplus must always bearrow_forwardIn economics, the cost of producing a good: Question 6 options: is the maximum value of other goods that could have been produced using the same resources. equals the out-of-pocket costs incurred in producing the good. is the value of inputs used up in production. is the value of other goods that could have been produced using the same resources.arrow_forwardPlease correct answer and don't used hand raiting and don't used Ai solutionarrow_forward
- not use ai pleasearrow_forwardGates Doubles Down on Malaria Eradication The End Malaria Council, convened by Bill Gates and Ray Chambers, seeks to mobilize resources to prevent and treat malaria. The current level of financing is too low to end malaria. Bruno Moonen, deputy director for malaria at the Gates Foundation, says that more resources, more leadership, and new technologies are needed to eradicate malaria in the current generation. Is Bruno Moonen talking about production efficiency or allocative efficiency or both? Bruno Moonen is talking about _______. A. production efficiency but not allocative efficiency B. production efficiency and allocative efficiency C. allocative efficiency but not production efficiency D. neither production efficiency nor allocative efficiencyarrow_forwardWhat challenges do medical facilities face when trying to become more culturally competent? What kinds of assumptions do providers sometimes make about people from other cultures? What factors may cause providers to relate to patients in a biased manner? What can healthcare organizations do to ensure cultural competence among their employees?arrow_forward
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Survey of Economics (MindTap Course List)EconomicsISBN:9781305260948Author:Irvin B. TuckerPublisher:Cengage Learning