Functions of Money
Function
of money can be explained in terms of medium of exchange, measurement of value,
store of value;
1. Medium of Exchange
Money works as medium of exchange. In barter
system good were used to exchange the goods, which were later on replaced by
money. There were number of disadvantages of using goods as medium of exchange i.e.
Lack of storage space, deterioration of goods, value determination of goods
etc.
2. Measurement
of Value
Money is used to determine or measure of value
of different goods. For example we say that Gold is 100 $ per gram, this is
very clear understanding of value measurement.
In barter system it was very difficult to determine the value of good. the difficulty faced is being explained with an example ,if 10 gram of gold can be exchange with 10 kg sugar, or 5 kg tea, or 30 mangoes , or 24 apples, then it is very difficult to determine the value of each of above goods.
In barter system it was very difficult to determine the value of good. the difficulty faced is being explained with an example ,if 10 gram of gold can be exchange with 10 kg sugar, or 5 kg tea, or 30 mangoes , or 24 apples, then it is very difficult to determine the value of each of above goods.
3. Money Store Value
Money is used to store value. It means that at
any time you can buy anything with money. In barter system, it was difficult to
store value in good, because goods are subject to deterioration.
It
is important to remember that money is not a perfect source of storing value,
because money value also falls over the period of time due to inflation.
