Flow of Money
Circular Flow Diagram
This diagram displays the relationship of resources and money between firms and households.
Functions of Money
Money serves as a medium of exchange, as a store of value, and as a unit of account. Medium of exchange. Money's most important function is as a medium of exchange to facilitate transactions.
Important Definitions
- Voluntary Exchange is the act of buyers and sellers freely and willingly engaging in market transactions.
- Barter is the exchange (goods or services) for other goods or services without using money.
- Market is an economy in which decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.