Question

1. What is money? Discuss the characteristics of money as medium of exchange, unit of account, store of value, and means of deferred payment.

Answer 1

Money refers to a thing like coins and notes, which is generally accepted by the people and act as a medium of exchange for the goods and services. It provides us the following important functions or have following characteristics:

Medium of exchange: It serves as a medium of exchange means that money acts as an intermediary for the exchange of goods and services.

Unit of account: Money serves as a measure of value in terms of unit of account, that is, in monetary unit. It acts as a common denominator in which the value of every goods and services are expressed.

Store of value: It is convenient to store value in terms of money because it has general acceptability, stability of its value and it is convenient to store money.

Standard of Deferred payments: It refers to those payments which are made in future. Money is accepted as a standard of deferred payments because it has general acceptability, its price remains stable, it is more durable compared to other commodities.