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What is money?

Money is anything that is generally accepted as payment for goods and services and repayment of debts.

Functions of Money

A medium of exchange

Money overcomes the problem of needing a double coincidence of wants. It can be used to exchange and is therefore a comparative object, a tertium comparationis ("a third comparative unit").

A unit of account

Money acts as a measuring unit for value. Thus different commodities can be expressed in terms of money uniformly. This simplifies the comparison of the value of two products or services.

A store of value

Money can be used to store value. Unlike barter system where the commodities could not be saved over time, money can be stored as it does not lose value overtime.

A standard of deferred payment

Money can be used to pay over time for commodities. Goods and services can be paid for in instalments over a period of time e.g hire purchase. This was much more difficult and complicated in the barter system.



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