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Functions of Money

The main functions of money are:

  1. Medium of exchange: Money serves as a standard unit of account that facilitates transactions by allowing goods and services to be exchanged for a common and widely accepted medium of exchange.
  2. Unit of account: Money serves as a standard unit of measurement for the value of goods, services, and financial assets, enabling individuals and businesses to compare prices and make informed decisions.
  3. Store of value: Money allows individuals to save for future consumption by maintaining its purchasing power over time.
  4. Facilitates exchange: By reducing the transaction costs and increasing the efficiency of exchanging goods and services, money helps to promote economic activity and growth.
  5. Standard of deferred payment: Money enables individuals and businesses to make deferred payments, such as loans, mortgages, and insurance contracts, by providing a means of transferable credit.