EPF.6

Defining the Role of Money

What is money?

Money is any object recognized and accepted as a payment for a good or a service. The main functions of money are as a medium of exchange, a unit of account, and a store of value.

Medium of Exchange

This is the most well-known use of money. Money in this form is used in order to avoid the problems of a barter system. In order to be a medium of exchange it must be widely accepted as a form of currency. The reason for this is that people will not trade with you if you don't give them something that they find of value.
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Unit of Account

A unit of account is the standard monetary unit of measurement of the value and costs of goods, services, and assets. This function of money is susceptible to inflation which makes it very unstable. This function is most often found in accounting and financing.
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Store of Value

Money is a store of value, which means that it can be saved, retrieved, and exchanged at a later time and be useful when retrieved. Forms of a store of value include currency, financial capital, or commodities like gold and silver.
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