What are the three basic functions of money?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The three basic functions of money are

  • Medium of exchange.  This means that it can be used to buy things.  This is more efficient than a barter system in which no one commodity can always be used to buy other things.
  • Store of value.  Money cannot lose significant parts of its value over time.  Anything that is perishable, therefore, can't really be used as money.
  • Unit of account.  We need to be able to use money to measure how much wealth we have or how much something costs.  Money helps us to know the exact worth (in market terms) of anything.