Question

What are the four functions of money? Can something be considered money if it does not fulfill all four functions? Please give an example.

Answer 1

The four functions of the money are

1. Medium of exchange - The money act as a medium of exchange , it facilitates both buying and selling goods and services in the market. It is one of the most important function among the all, with out this function of thre money all the transactions would be conducted by the old barter system.

2. Store of value- For using money for a medium of exchange it must a hold a value over time, the value of money over changes due to inflation and deflation in the economy. So it is not stable store of valu, it may depreciate or appreciate.

3. Act as a measure of value- The value of the goods and services can be measured by the money, by assiging a price for the each commodity.

4. Standard deferred payments.- With the introduction of the money in the economy, the lending and the borrowing activities in the have become easier.

There is nothing to replace for money if it does not fulfill the all four functions.