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Difficulty: MediumFunctions and Characteristics of Money

Match each economic scenario on the left with the specific function or characteristic of money it directly illustrates on the right.

  • A merchant accepts legal tender notes for a trade because all citizens universally recognize and accept them for settling transactions.Medium of Exchange
  • A price tag on a generator displays ₦450,000, enabling buyers to calculate and compare its relative value against other goods.Unit of Account (Measure of Value)
  • A wage earner saves a portion of monthly income in a bank deposit to purchase a house several years in the future.Store of Value
  • A currency system provides small-denomination notes and coins so buyers can purchase low-cost items and receive exact change.Divisibility

Answer

The economic scenarios match the functions and characteristics of money as follows: Accepting legal tender for trades matches Medium of Exchange; Displaying prices for comparison matches Unit of Account; Saving income for future purchases matches Store of Value; Providing small denominations for exact change matches Divisibility.
Each scenario illustrates a core attribute or function of money: facilitating transactions serves as a medium of exchange; expressing goods in monetary prices serves as a unit of account; holding purchasing power over time serves as a store of value; and operating in smaller fractional units demonstrates divisibility.

Step-by-Step Solution

1
Analyze scenario 1 (accepting legal tender for trade)
Identified as Medium of Exchange because money is used to facilitate trading goods without direct barter.
The primary function of money is to eliminate the double coincidence of wants by serving as a universally accepted instrument of exchange.
2
Analyze scenario 2 (price tagging and value comparison)
Identified as Unit of Account because money acts as a common denominator for measuring value.
Money provides a standard unit in which prices are quoted and accounting values are stated.
3
Analyze scenario 3 (saving income for future house purchase)
Identified as Store of Value because money retains purchasing power across time.
Money allows individuals to transfer purchasing power from the present to the future.
4
Analyze scenario 4 (providing smaller units for change)
Identified as Divisibility because money can be divided into smaller units for transactions of varying sizes.
Divisibility ensures money can accommodate transactions of large and small values smoothly.

Key Concept

Functions and Characteristics of Money
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Topics

Functions and Characteristics of Money

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