Money is a store of value

Date: 2015-10-07; view: 445.

Money is a measure of value or a unit of account

Money is a medium of exchange

Firstly, money is the mechanism that enables parties to make an indirect exchange of goods and services. In a money economy, if you want to buy or sell something, you don't need to find someone who has what you want and who wants what you have. Money effectively eliminates the problem of a double coincidence of wants by serving as a medium of exchange. It is easily accepted in all transactions, by all parties, regardless of whether they desire each others' goods and services. What is important, moneytransmits value through space. In a barter system, this is very difficult because transfer of large items and perishable goods makes moving around rather problematic.

Secondly, money is the benchmark for measuring value of goods and services. If you want to buy a mobile telephone, you don't need to calculate how much tobacco or honey will be necessary to buy it. Instead, you see the product's price, set in terms that everyone can understand, and you immediately know how cheap or expensive it is, comparing that value to other products.

Thirdly, money acts as a store of value for future use or for storing wealth. By saving money, you are able to spend some now and some later. In this way money transmits value over time. This couldn't occur in a barter economy because not all commodities could be stored for future use. Some items wereperishable and subject to decay while others might die. Food items, expensive spices, fine silks, oriental rugs, etc. could not be suitable for use as money.

Note: In the time of high inflation or political instability, money may not be a good store of value.