Money is a fascinating aspect of the economy and a crucial element of economics. Conceptually anything generally acceptable as a medium of exchange is money. Historically, whales' teeth, elephant tail bristles, circular stones, nails, slaves, cattle, beer, cigarettes and pieces of metal have functioned as media of exchange. In our economy the debts of governments and of commercial banks and other financial institutions are used as money. Money that is everything that performs the functions of money.
There are three functions of money:
1. Medium of Exchange. First and foremost, money is a medium of exchange; it is usable in buying and selling goods and services. A worker in a bagel bakery does not want to be paid 200 bagels per week. No does the bagel bakery wish to receive, say, fresh fish for its bagels. Money is readily acceptable as payment. It is a social invention allowing resource suppliers and producers to be paid with a “good” (money) which can be used to buy any one of the full range of items available in the marketplace.
As a medium of exchange, money allows society to escape the complications of barter (barter is the system of paying for goods or services with other goods or services instead of using money). And because it provides a convenient way of exchanging goods, money allows society to gain the advantages of geographic and human specialization.
(1) Money (2) Money
(3) Oranges
(3) Money
Figure 1.Money facilitates trade where wants do not coincide.
By the use of money as a medium of exchange, trade can be accomplished. By facilitating exchange, the use of money permits an economy to realize the efficiencies of specialization.
2. Measure of Value. Money is also a measure of value. Society uses the monetary unit as a yardstick for measuring the relative worth heterogeneous goods and resources. Just as we measure distance in miles or kilometres, we gauge the value of goods and services in dollars, pounds etc. With a money system, we need not state the price of each product in terms of all other products for which it can be exchanged; we need not specify the price of cows in terms of corn, crayons, cigars, Chevrolets and croissants.
This use of money as a common denominator means that the price of each product need be stated only in terms of the monetary unit. It permits buyers and sellers to readily compare the worth of various commodities and resources. Such comparisons facilitate rational decision making. Money is used as a measure of value for transactions involving future payments. Debt obligations of all kinds are measured in the monetary unit.
3. Store of Value. Finally, money serves as a store of value. Because money is the most liquid – the most spendable – of all assets, it is a very convenient way to store wealth. The money you place in a safe or checking account will still be available to you months or years later when you wish to use it. Most methods of holding money do not yield monetary returns such as one gets by storing wealth in the form of real assets (property) or paper assets (stocks, bonds etc). However, money does have the advantage of being immediately usable by a firm or a household in meeting all financial obligations.
2.Comprehension check.
Are the following statements true or false? Correct the false ones.
a) Money is any item which is generally acceptable by sellers in exchange for goods and services.
b) The exchange of one good or service for another good or service is barter.
c) By promoting exchange the application of money prevents an economy from realizing the efficiencies of specialization.
d) Monetary unit is a gauge of the value of goods and services.
e) Similar to barter economy the use of money needs to specify the price of each good and service in terms of the others.
f) The second major function of money as a measure of value is good for deals drawing in coming payments.
g) Being a store of value money is not used in meeting all financial liabilities.
3.Read the text once again. Find words in the text that mean the same as the following.
(3) Oranges