Functions and Characteristics of Money Flashcards
What is money as a medium of exchange?
It solves all the difficulties of the barter system as there is no necessity for a double coincidence of wants in the money economy
What is money as a measure of value?
Values of all commodities are expressed in terms of money which makes transactions easy and fair
What is standard of deferred payment?
Contracts are made for future payments in terms of money instead of goods and promise to repay the loan in money
What is money as a store of value?
Money is used to store the value of commodities unlike goods which are perishable
How does currency fulfil the functions of money better than rum?
Because it is a medium of exchange, everyone uses it and understands its value
What is one example of standard of deferred payment?
Allowing someone to pay off a debt in two weeks time
What is one example of money as a measure of value?
Deciding whether to buy headphones or James Bond movies
What is one example of money as a store of value?
Putting aside money each week to save up for a new car
What is one example of money as a medium of exchange
Buying a cricket bat off someone
What does durability mean?
Money must be strong and not easily damaged or destroyed
What does divisibility mean?
Allows products to be priced from very cheap to very expensive as there will always be currency available to get the exact amount
What does transportability mean?
Money can be moved from one place to another, is relatively light and does not take up too much space
What does security mean?
Notes have a range of security features which means only the Reserve Bank produces currency and they are difficult to copy or counterfeit
How does gold demonstrate the characteristics of money?
It is very durable, can be divided, able to be transported and have good security
