Functions of money in any modern economy, Microeconomics

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Functions of money in any modern economy:

A medium of exchange: Money facilitates the exchange of goods and services because, people exchange the goods and services they produce for money and then use the money to buy other goods and services they want. This enabled man to overcome the problem of ‘double coincidence of wants’ associated with trade by barter.

A unit of account or a measure of value: Money serves as the unit in terms of which the values of goods and services are measured and recorded.

A store of value: Money provides the purchasing power in a general form that can be used to meet future needs of goods and services.Under the barter system, articles of trade are easily perishable and cannot be stored for future transactions.

A standard of deferred payment: Money makes it possible for people to enter into contracts, such as lending, borrowing, and enjoyment of services for fixed amount of money payable at a future dates. The exchange rate problem makes this impossible under the barter system.


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