The Functions of Money

The Functions of Money - TheFunctionsofMoney...

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The Functions of Money Money's prime function is to act as  (a) medium of exchange  (средство обращения) If an item does not perform  this function, it is not money. However, money performs other functions which are: to act as a store of  value; as a unit of account; and as a standard of deferred payments. (b) Store of value  (средство накопления) Holders of money do not have to use it up in a short or predetermined time.  Wealth may be held in the form of money or it may be held in the form of non- money assets such as gilts, shares, property or commodities. A major benefit  of holding wealth in the form of money is that the money can easily be  exchanged for other goods or services should the need arise. In contrast, other  assets which are held as wealth usually have to be converted into money  before they can be converted into required goods or services. A disadvantage of money as a store of value is that its purchasing power is  affected by  inflation.  However, if we class bank and building society deposits  as   money,   then   the   interest   earned   can,   to   some   extent,   compensate   for  inflation. Building society and bank deposits which offer variable rates of 
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This note was uploaded on 04/10/2012 for the course ECON 101 taught by Professor Gonalez during the Spring '12 term at Université de Bourgogne.

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The Functions of Money - TheFunctionsofMoney...

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