Functions of Money
- Money as a Medium of Exchange: Money serves as an intermediate step in an economy, eliminating the need for a double coincidence of wants.
- Convenient Unit of Account
- Universal Acceptability
- Store of Value
- Dynamic in Nature: When commodity prices increase in terms of money, the purchasing power of money decreases, allowing a unit of money to purchase less of any commodity.
- Cashless nature: Eg: Jan Dhan accounts, Aadhar enabled payment systems, e-wallets, and National Financial Switch to promote financial inclusion.
FAQ : Functions of Money
What is the function of money as a medium of exchange?
Money facilitates transactions by serving as a medium of exchange, removing the requirement for a direct exchange of goods or services, known as the double coincidence of wants.
How does money function as a unit of account?
Money provides a convenient unit for measuring the value of goods and services, simplifying economic calculations and comparisons.
What does universal acceptability mean in the context of money?
Universal acceptability implies that money is widely recognized and used by individuals and businesses as a means of payment, regardless of geographical location or personal preferences.
Explain the concept of money as a store of value.
Money retains its worth over time, allowing individuals to save purchasing power for future use, thereby serving as a store of value against inflation or other economic fluctuations.
How is money dynamic in nature, and what implications does it have?
Money’s dynamic nature means its purchasing power can fluctuate based on changes in commodity prices. When commodity prices rise, the purchasing power of money decreases, affecting individuals’ ability to buy goods and services.
