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Unformatted text preview: What exactly does money do? Sure, you can buy things with it and save it, but how does it function within the economy? There are four basic functions of money: The first is as a medium of exchange. The second is as a unit of account. The third is as a store of value. The fourth is as liquidity. By understanding each of these functions, it is possible to see how important money is to the economy. The most obvious function of money is as a medium of exchange. When you hand the waiter a five-dollar bill in exchange for your hamburger, you are using money as a medium of exchange. You might have a hard time paying for your hamburger with five dollars worth of apples, but if you did, the apples would serve as a medium of exchange as well. To simplify, a medium of exchange is something that buyers give to sellers in as well....
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This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.
- Fall '10