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Q. What are the main functions of money?
Answer: Money serves generally three important functions that are a unit of account, a medium of exchange and a store of value.
As medium of exchange money evade going back to a barter economy with the enormous search costs connected with it. Like a unit of account the use of money economizes on the number of prices an individual faces. Consider a financial system with N goods then one need only (N- 1) prices. Like a store of value the use of money in general ensures that you can transfer wealth between periods.
Q. To answer the following question, please refer to the figure below. Concentrating only at the lower right quadrant, discuss the effects of a change in U.S. expected inflation.
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