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Principles of Economics- Mankiw (5th) 589

Principles of Economics- Mankiw (5th) 589 - CHAPTER 27 T H...

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CHAPTER 27 THE MONETARY SYSTEM 609 THE FUNCTIONS OF MONEY Money has three functions in the economy: It is a medium of exchange, a unit of ac- count, and a store of value. These three functions together distinguish money from other assets, such as stocks, bonds, real estate, art, and even baseball cards. Let’s examine each of these functions of money in turn. A medium of exchange is an item that buyers give to sellers when they pur- chase goods and services. When you buy a shirt at a clothing store, the store gives you the shirt, and you give the store your money. This transfer of money from buyer to seller allows the transaction to take place. When you walk into a store, you are confident that the store will accept your money for the items it is selling because money is the commonly accepted medium of exchange. A unit of account is the yardstick people use to post prices and record debts. When you go shopping, you might observe that a shirt costs $20 and a hamburger
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