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Money and Its Function

What is money? Functions of money?

What is money?

Money is anything that is generally acceptable in payments for goods and services or in the repayments of debts. It is also defined as anything that is regularly used in economic transactions or exchanges.

Functions of Money

Money as a medium of exchange.

In all market transactions, money is used to pay for goods and services. The sale or purchase of goods is done through money. Money, in other words, acts as a medium of exchange and helps in overcoming the difficulty of double coincidence of wants of the barter economy. A person now can sell his goods to another person for money and then he can spend that money to purchase the goods he wants from others. Money has made the exchange of goods easy. The time spent in the exchange of goods with the use of money has been considerably reduced.

Money as a unit of exchange.

Another important role of money is that it serves as a common measure of value. The value of goods and services can be expressed in terms of units of money. Just as we measure weights in terms of pounds or distance in terms of kilometers, similarly we measure and compare the value of goods and services in terms of money. Money is the yardstick that allows the individuals to measure the relative value of goods and services. For exampes, a car may be listed for sale at Rs. five lakh, a house for Rs. fifty lakh. The use of money as unit of account has greatly reduced transaction costs i.e the time, effort and expenses that go into the purchase or sale of goods.

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