What is the primary function of money?

The correct answer is - All of the above

Key Points

• Primary Functions of Money
  • Medium of Exchange: Money facilitates transactions by eliminating the need for a double coincidence of wants, which is required in barter systems. It allows people to buy and sell goods and services efficiently.
  • Store of Value: Money can be saved and retrieved in the future, maintaining its value over time. This function allows individuals to defer consumption until a later date.
  • Unit of Account: Money provides a standard measurement of value, which makes it easier to compare the value of goods and services. It simplifies the process of setting prices and recording debts.

Additional Information

• Other Important Functions of Money
  • Standard of Deferred Payment: Money allows for the settlement of debts in the future. It facilitates credit transactions by providing a reliable means of payment over time.
  • Liquidity: Money is the most liquid asset, meaning it can be easily converted into other goods and services without losing its value. This liquidity makes money highly convenient for everyday transactions.
• Historical Context
  • Historically, various commodities like gold, silver, and grains have been used as money. Modern economies use fiat money, which has no intrinsic value but is accepted as money by government decree.
  • The development of money has significantly contributed to the growth of complex economies by facilitating trade, saving, and investment.