The Functions of Money

Money serves 3 distinct functions in an economy: as a medium of exchange, something widely accepted in trade that solves the problem of needing to find someone who wants exactly what you are offering; as a unit of account, a common measure used to state prices and compare the value of very different goods and services on the same scale; and as a store of value, a way to hold wealth over time so a person does not have to spend everything they earn right away. Money is not a perfect store of value, though: inflation gradually erodes how much a fixed amount of money can actually buy, so holding cash over a long period, rather than saving it in a form that keeps pace with inflation, still loses real value over time.

This explanation is AI-generated and can occasionally be wrong. 🚩 Report