Chapter 14.1, Problem 2R

To determine

To ascertain: The example for medium of exchange, unit of accounting, store of value for each function of money.

Explanation of Solution

Money helps make trading simpler. Money is a medium exchange since its general value is decided by buyers and sellers. Some examples are currency, gold, cattle etc. Historically cattle and gems were used as a way of exchange but gradually currency was replaced and used as source of exchange.

Unit of accounting: another significant role is the account unit. In a given currency the worth of anything is calculated. It allows contrast of different items tone another; labor, income, expenses. For instance converting one dollar into 100 cents, for instance, or one pound into 100 pence.

Store of value: It is an asset which holds its importance on without any depreciation. Gold and other metals are invaluable storehouses because their shelf life is essentially infinite, while a perishable product (milk, for instance) is a weak store of value due to its diminishing tendencies. Examples are gold, and decent value stores for other metals.

Economics Concept Introduction

Introduction: Money is classified in economics as an asset that functions as a generally agreed means of trade, which is to say, it has the facility to buy directly any commodities for sale in the economy.