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Question

Difficulty: MediumFunctions and Characteristics of Money

Match each function of money listed on the left with its primary economic role or application on the right.

  • Medium of ExchangeEliminates the problem of double coincidence of wants by facilitating trade transactions.
  • Unit of AccountProvides a common monetary denominator for measuring and comparing the relative economic worth of goods.
  • Store of ValueAllows purchasing power to be preserved over time for future consumption.
  • Standard of Deferred PaymentEnables credit transactions by establishing a agreed metric for settling future debts.

Answer

Medium of Exchange matches with eliminating the double coincidence of wants; Unit of Account matches with providing a common monetary denominator for pricing; Store of Value matches with preserving purchasing power over time; and Standard of Deferred Payment matches with enabling credit transactions and settling future debts.
Each monetary function directly addresses a specific limitation of the barter economy. The Medium of Exchange facilitates immediate trade by eliminating the requirement for mutual exchange desires. The Unit of Account establishes a common price measure. The Store of Value permits saving wealth for future use. The Standard of Deferred Payment enables credit agreements by providing an agreed unit for future settlement.

Step-by-Step Solution

1
Identify the primary functions of money vs secondary functions
Medium of Exchange and Unit of Account are primary functions; Store of Value and Standard of Deferred Payment are secondary (derivative) functions.
Categorizing functions helps link each accurately to its core economic definition.
2
Match Medium of Exchange to its defining transaction role
Medium of Exchange directly solves the barter defect where two trading parties must mutually want each other's commodities.
Money serves as an acceptable intermediate token in exchanges.
3
Match Unit of Account to its valuation role
Unit of Account establishes a monetary yardstick to express price and relative value of heterogeneous commodities.
Without a unit of account, every product would have to be priced in terms of every other product.
4
Match Store of Value and Standard of Deferred Payment to their temporal roles
Store of Value preserves purchasing power across time, whereas Standard of Deferred Payment governs future contractual obligation settlements.
Store of value concerns holding purchasing power; deferred payment concerns future debt settlement.

Key Concept

Functions of Money (Primary vs. Secondary)
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Topics

Functions and Characteristics of Money

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