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Question

Difficulty: MediumFunctions and Characteristics of Money

Match each practical economic action described on the left with the specific function of money it demonstrates on the right.

  • An online vendor lists the price of leather shoes as ₦45,000 to allow buyers to compare its value against a ₦15,000 shirt.Unit of account (Measure of value)
  • A worker deposits a portion of their monthly salary into a fixed savings account to fund future retirement expenditures.Store of value
  • A trader instantly hands over currency notes to buy fresh vegetables at a local food market.Medium of exchange
  • A real estate developer signs an agreement to pay for building materials over six equal monthly installments.Standard of deferred payment

Answer

Item 1 matches Unit of account (Measure of value), Item 2 matches Store of value, Item 3 matches Medium of exchange, and Item 4 matches Standard of deferred payment.
Each scenario illustrates a distinct monetary function: Expressing values in currency facilitates price comparison (unit of account); setting aside funds for future retirement retains purchasing power over time (store of value); paying cash for goods acts as an intermediary trade tool (medium of exchange); and structuring credit payments over future installments relies on money as a benchmark for debt settlement (standard of deferred payment).

Step-by-Step Solution

1
Analyze the action of price listing and comparative valuation.
Money acts as a common measuring unit (Unit of Account) allowing valuation of shoes relative to a shirt.
Unit of account serves as a standard benchmark for stating prices and calculating economic value.
2
Analyze the action of depositing salary into savings for retirement.
Purchasing power is preserved for future consumption (Store of Value).
Money can be accumulated and retrieved later to purchase goods without rapid loss of purchasing power under normal conditions.
3
Analyze the action of handing over cash for vegetables.
Currency acts as an intermediary tool (Medium of Exchange) facilitating immediate trade.
Medium of exchange eliminates barter inefficiency by being generally acceptable in commercial transactions.
4
Analyze the agreement to pay for materials over monthly installments.
Money acts as a benchmark for future debt settlement (Standard of Deferred Payment).
Contracts specifying future financial obligations rely on money to measure debt values over time.

Key Concept

Primary and Secondary Functions of Money
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Topics

Functions and Characteristics of Money

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