The three major functions of money in economics

Functions of Money

CheckPoint Money Resource: Money: Its Functions Characteristics Submit a 250- 300-word response addressing points: • Money acts a unit account, medium exchange, a store . Describe functions. • Provide money functions.

Money

Money is defined according to it three major function. It is in many cases referred to as a store of value, unit of account and a medium of exchange. Money is any item that is legally satisfying the needs for undertaking a transaction in an economy Woodford M., 2000()

Money as a Unit of Account

A unit of account means assigning a value to goods and services in the economy Woodford M., 2000.

This function of money assigns money the key role of designating value to tradable items in an economy. Money as a unit of account indicates what buyers and seller are willing to part with or receive.

When one visits a suit merchant, they will see that woolen suits would cost more compared to linen or those made from cotton. The function of money in this perspective is to assign the unit cost of the suits made from different materials and the value traders are ready to accept for the items.

Money as Store of value

Money is a store of value since those who hold it can postpone using it and still have the pleasure of using it a later time. This implies that withholding money is storing value. Money is the best store of value since it value is stable at least compared to other commodities. Stability of a medium of exchange is one that is considered amply when qualifying an item as money Woodford M., 2000()

From a perspective of consumer goods, one can use them to store value but, the value they are likely to yield in the future is much different t from the value money is expected to yield. If a hot dog, costs 5 dollars and Jackson opts to buy an extra one to store and eat over the weekend. It is observed that the value of the hot dog will have depreciated by the third day if no further storage measures are considered. To keep the hot dog good to the end of the weekdays, Jackson will have to invest in freezing or cooling system. This is an extra cost plus the cost of warming the hot dog to make it ready for consumption. Contrary to all the extra costs and trouble, Jackson can just stash the 5 dollars and take it out over the weekend while going to buy another hot dog. The five dollar stashed away for the five days will have retained its value being worth to buy the desired hot dog.