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Question

Answer the following question.
What are the primary functions of money?

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Solution

Money refers to a common medium of exchange that is issued under the law of government and acts as a legal tender for the whole country.

The primary function of money includes money as a medium of exchange and money as a measure of value.

1. As a medium of exchange, it refers to a function of money in which money is considered as a mode of exchanging goods. This function of money solved the main problem of barter system which was double coincidence of wants.

2. As a measure of value, it refers to a function of money that helps in determining the value of goods and services. Money is taken as the common denominator while measuring the value of goods and services in monetary terms.


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