The Functions of Money

Money is any generally accepted medium of exchange.

A medium of exchange is any asset that can be used to purchase goods and services or to repay debts.

For money to act as medium of exchange, it must:

i. be readily acceptable,

ii. have a known value,

iii. be easily divisible,

iv. have a high value relative to its weight, and

v. be difficult to counterfeit.

Money can act as a store of wealth.

Money can be used as a universal unit of account. It can create a single unitary measure of value for all goods and services.

Money fulfills three important functions, it:

acts as a medium of exchange;

provides individuals with a way of storing wealth;

provides society with a convenient measure of value and unit of account.