Question

many things have been used as money over time: cigarettes, gold, paper currency (like the U.S. dollar), etc. Describe the functions of money and consider the U.S. dollar as an example. Although the U.S. dollar has little or no intrinsic value, why do people want it so much? Can you think of other examples of things that act as “money” in our society?

Answer 1

As we all know before money there was barter system(literally trading one good or service for another) which used for the trade. This did not ease always which forces to use the money for trading. There are various functions of money which are explained below.

1. The medium of exchange: Firstly money is used as a medium of exchange. When we want to buy something in the market we have to pay money for that.

2.Store of value: Money is used as a store of value. When we don't need to spend all the money we store it as value and spend it when required. When there was no money people used to keep gold and other goods as a store of value.

3. Unit of Account: It means that money is the ruler by which other values are measured. For example,  $100 can purchase two pair of shoes at $50 a pair. The price of a movie ticket is $10.

4. Standard of deferred payment: This means that if money is usable today to make purchases, it must also be acceptable to make purchases today that will be paid in the future. We can lend some commodities and can pay it in terms of money in future.

As we discussed above the money has important functions. As we know that nowadays the money we widely used has no intrinsic value popularly know as fiat money. Fiat money has no intrinsic value but is declared by a government to be the legal tender of a country. In the US dollar is considered as the legal tender for which people need it. As we discussed earlier money can be used as a medium of exchange and store of value, people need the dollar for it.  

In the barter system, people use all most all goods like money. In some areas, people use rice as money, that is when they want to buy something they give rice, for example, someone wants to buy cooking oil he/she has to pay for the cooking oil in terms of rice.