Question

What is meant by Money ? Explain its primary functions.

Hint:

A famous rhyme to remember the functions: "Money is a matter of functions four; a medium, a measure, a standard, a store." The first two are the Primary functions.

Answer 1

Step 1: Understanding the Concept:
The evolution of money solved the problems of the Barter system, such as the double coincidence of wants and lack of a common unit of value.
Step 2: Detailed Explanation:
Money performs several functions, categorized as Primary, Secondary, and Contingent. The primary functions are the most fundamental:
1. Medium of Exchange: This is the most essential function. Money acts as an intermediary in transactions. It allows people to sell goods for money and use that money to buy what they need. This separates the acts of buying and selling.
2. Measure of Value (Unit of Account): Money serves as a common denominator for expressing the values of all goods and services. Just as we measure length in meters, we measure economic value in currency units (like Rupees). This facilitates accounting and price comparison.
Step 3: Final Answer:
By acting as a medium of exchange and a measure of value, money eliminates the inefficiencies of barter and allows for modern commerce and complex economic systems.