Name and describe the three primary functions of money.

Name and describe the three primary functions of money.

• A. Medium of exchange, unit of account, store of value.
• B. Medium of barter, unit of price, store of debt.
• C. Medium of investment, unit of measure, store of risk.
• D. Medium of exchange, store of value, monetary policy tool.

Answer: (A)

Money serves three main roles. First, as a medium of exchange, it facil­itates buying and selling by being widely accepted for goods and services, which cuts down on trading frictions and the need to find someone who wants what you have and who also wants what you want. Second, as a unit of account, it provides a common measurement for prices and financial records, making it easy to compare costs, calculate profits, and track debts and assets. Third, as a store of value, it can be held for future purchases, preserving purchasing power over time (though this can be affected by inflation). Examples help solidify the idea: paying at a store with cash or a card uses money as a medium of exchange; price tags and financial statements express value in money, illustrating its unit-of-account function; saving money for future needs demonstrates its store-of-value role. The other options mix up terms: a medium of barter describes a world without money, not money’s function; a unit of price isn’t a standard function term, and store of debt is not how money is described to function; labeling money as a monetary policy tool confuses the instrument central banks use to influence the economy with money’s own primary roles.

Money serves three main roles. First, as a medium of exchange, it facil­itates buying and selling by being widely accepted for goods and services, which cuts down on trading frictions and the need to find someone who wants what you have and who also wants what you want. Second, as a unit of account, it provides a common measurement for prices and financial records, making it easy to compare costs, calculate profits, and track debts and assets. Third, as a store of value, it can be held for future purchases, preserving purchasing power over time (though this can be affected by inflation).

Examples help solidify the idea: paying at a store with cash or a card uses money as a medium of exchange; price tags and financial statements express value in money, illustrating its unit-of-account function; saving money for future needs demonstrates its store-of-value role.

The other options mix up terms: a medium of barter describes a world without money, not money’s function; a unit of price isn’t a standard function term, and store of debt is not how money is described to function; labeling money as a monetary policy tool confuses the instrument central banks use to influence the economy with money’s own primary roles.