Name the three primary functions of money.

Name the three primary functions of money.

• A. Medium of exchange, unit of account, and store of value.
• B. Medium of exchange, unit of value, and standard of deferred payment.
• C. Medium of exchange, legal tender, and instrument of taxation.
• D. Unit of account, unit of weight, and store of value.

Answer: (A)

Money has three primary roles in an economy: it acts as a medium of exchange, a unit of account, and a store of value. As a medium of exchange, money is widely accepted in payment for goods and services, which makes traded transactions more efficient than barter. As a unit of account, money provides a common measure for pricing goods and services and for keeping financial records, making it easy to compare values and track debt or profits. As a store of value, money can be held over time and spent later, preserving purchasing power (though this can be affected by inflation). Other options mix in ideas that aren’t the core trio. For example, a standard of deferred payment is related but not one of the three primary functions; legal tender is about government designation, not a basic economic function; and a unit of weight or unit of value don’t describe money’s fundamental roles in everyday transactions and accounting.

Money has three primary roles in an economy: it acts as a medium of exchange, a unit of account, and a store of value. As a medium of exchange, money is widely accepted in payment for goods and services, which makes traded transactions more efficient than barter. As a unit of account, money provides a common measure for pricing goods and services and for keeping financial records, making it easy to compare values and track debt or profits. As a store of value, money can be held over time and spent later, preserving purchasing power (though this can be affected by inflation).

Other options mix in ideas that aren’t the core trio. For example, a standard of deferred payment is related but not one of the three primary functions; legal tender is about government designation, not a basic economic function; and a unit of weight or unit of value don’t describe money’s fundamental roles in everyday transactions and accounting.