Essay
Money
- Module
- Basic Finance (BUS2203)
- Institution
- The Open University (OU)
Review the material in Chapter 3 on Money and respond to these questions: What economic functions does money perform? How is money supply measured and why?
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Principles of finance (BUS 2203)Discussion Forum Unit 1
07/04/2023
Review the material in Chapter 3 on Money and respond to these questions:
• What economic functions does money perform?
• How is money supply measured and why?
Money
Money serves several economic functions, including:
1. Medium of exchange: Money is used as a medium of exchange to facilitate
transactions. It eliminates the need for barter and allows for easy exchange
of goods and services. (P, 2023).
2. Unit of account: Money serves as a common unit of measurement for the
value of goods and services. This enables people to compare the prices of
di erent goods and services and make informed economic decisions.
3. Store of value: Money can be stored for future use as a means of preserving
wealth. This function is important because it allows people to save for future
consumption or investment.
4. Standard of deferred payment: Money allows for transactions to be
conducted with the promise of future payment. This is important in credit
markets where borrowers can use money to pay back lenders at a later date.
5. Means of exchange: Money can be used to settle debts and pay taxes,
making it a means of exchange that is widely accepted by society.
Overall, money plays a crucial role in facilitating economic activity by allowing for
the exchange of goods and services and the allocation of resources in the
economy.
Money supplied and measured can be classi ed as M1, M2,M3. It can be
measured in di erent ways, depending on the de nition of money being used.
M1: This includes the most liquid forms of money, such as currency, checking
account deposits, and traveler's checks.
M2: This includes all of M1, as well as less liquid forms of money, such as savings
account deposits and money market mutual funds.
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