Medium of exchange. Money's most important function is as a medium of exchange to facilitate transactions. Without money, all transactions would have to be conducted by barter, which involves direct exchange of one good or service for another. The difficulty with a barter system is that in order to obtain a particular good or service from a supplier, one has to possess a good or service of equal value, which the supplier also desires. In other words, in a barter system, exchange can take place only if there is a double coincidence of wants between two transacting parties. The likelihood of a double coincidence of wants, however, is small and makes the exchange of goods and services rather difficult. Money effectively eliminates the double coincidence of wants problem by serving as a medium of exchange that is accepted in all transactions, by all parties, regardless of whether they desire each others' goods and services. Show
Store of value. In order to be a medium of exchange, money must hold its value over time; that is, it must be a store of value. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. As a store of value, money is not unique; many other stores of value exist, such as land, works of art, and even baseball cards and stamps. Money may not even be the best store of value because it depreciates with inflation. However, money is more liquid than most other stores of value because as a medium of exchange, it is readily accepted everywhere. Furthermore, money is an easily transported store of value that is available in a number of convenient denominations. Unit of account. Money also functions as a unit of account, providing a common measure of the value of goods and services being exchanged. Knowing the value or price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase. What is Money? (Money and Banking)I. Introduction Circular Flow Model of Capitalism II. What Is Money? A. Examples of MoneyPeople have used cattle, cigarettes, shells, stones, gold, and even beer as money III. Money Supply (MS) A. REVIEW - If: MS Interest Rates I AD IV. Money Demand 1. What is it? V. The Money Market Graph: A. If MS decreases: VI. The Federal Reserve and the Banking System A. Structure of the Federal Reserve System1. Board of Governors What is the direct exchange of goods and services for other goods and services?Without money there would be barter. Barter is the direct exchange of goods and services for other goods and services.
What is the exchange of goods called?Bartering is the exchange of goods and services between two or more parties without the use of money. It is the oldest form of commerce.
When money is used to measure the value of goods and services it is functioning as a?Money as a standard of value or measure of value refers to that function of money which helps in determining the value of goods and services in the economy.
What is anything that is used to determine value during the exchange of goods and services?A medium of exchange is anything that is used to determine value during the exchange of goods and services.
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