Chapter 14.1, Problem 1R

To determine

To ascertain the significance of money, medium of exchange, barter, unit of accounting, store of value, commodity money, representative money, fiat money, legal tender.

Explanation of Solution

Money is defined in matters of the three functions or services it provides. Money acts as a trading medium, as a value of store, and as an account unit. Interchange process. The vital characteristic of money is to promote transactions for exchanging.

Act as a medium of exchange;, Is a method or device used to promote the selling, purchase or exchange of products between parties. It facilitates the system of economy to operate fruitfully.

Bartering is the mechanism between two parties of exchanging services or goods, everybody profits when people barter, since they receive goods or services they need or want. There is also a benefit to bartering since even people without money can get everything they need. It had a great advantage at the time when currency was not introduced.

Unit of accounting, money facilitates as a unit of value or a measures of common value. It helps to make market exchange prices. For example money works as a common denomination such as ‘Price’ to express value of all goods and services.

Store of value; Money is a kind of commodity within a capitalist economy that can be used to buy goods and services. The crucial aspects of money is that it acts as a liquidity fund, which means can not only sell it but also save it for future use.

Commodity money; Commodities are considered a strong hedge against inflation as their prices continue to increase during high inflation cycles.

Representative money, a symbolic thing like instruments such as credit cards and checks. Before 1971 the world's currencies were representative, backed by gold

Fiat money, like commodity-based currency such as copper, gold and silver, its value quality is the important elements of fiat money. In the 20th century, the use of fiat cash became widespread as governments and banks stepped in to shield their economies from regular business cycle breakdowns.

Legal tendering; one effect of the law on tendering is that it enables debts and obligations to be dismissed in a cheaper form of "dollars" than gold and silver coins. In particular, to settle "dollar" loans, it uses circulating notes and deposits of the Federal Reserve.

Economics Concept Introduction

Introduction: In economics, money is known as an asset that acts as accepted means of trade, i.e. it has the advantages of using directly to buy certain goods for sale within the economy.