1. Medium of Exchange
Money acts as a universally accepted form of payment that facilitates the exchange of goods and services: it eliminates the need for a barter system, where individuals would have to directly exchange goods or services for other goods or services. Money enables individuals to trade with ease and promotes specialization, division of labor and efficient allocation of resources in the economy
2. Unit of Account
Money, in this sense, provides a common standard for measuring the value of goods, services, and assets: it allows individuals and businesses to compare and assess the relative worth of different products and resources. Prices are expressed in monetary terms, enabling easy comparison and calculation of value
3. Store of Value
It allows individuals to save wealth and retain purchasing power over time: money's ability to hold value enables individuals to defer consumption and accumulate savings. Unlike perishable or non-durable goods, money can be held for future use without losing its worth; however, the value of money can be eroded by inflation or changes in economic conditions, necessitating prudent financial management and investment decisions.
4. Standard of Deferred Payment
Money facilitates borrowing, lending and credit transactions:
it allows individuals and businesses to enter into contracts and agreements that involve future payments.
5. Portability and Divisibility
Money's physical attributes, such as portability and divisibility, contribute to its efficient functioning as a medium of exchange: money is typically lightweight, easily transferable, and divisible into smaller denominations.
These characteristics make it convenient for individuals to carry and use money for transactions of varying sizes, ensuring liquidity and accessibility.
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