Money Functions of Money Try to imagine an economy without money. Without money, it would be almost impossible to carry out the usual day to day business of life. For instance, if you wanted to buy a hamburger without cash, you would have to give the restaurant something else in return. Perhaps you could wash the dishes, or sweep the floor. Either way, the ability to pay for goods and services with money greatly simplifies consumer life and eliminates the necessity of bartering goods and services for other goods and services. 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.
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This note was uploaded on 02/09/2012 for the course ECO ECO2013 taught by Professor Jominy during the Fall '08 term at Broward College.