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Question

Explain the 'store of value' function of money. How has it solved the related problem created by barter ?


Solution

Store of value-
Generally, people have a tendency to save certain portion of their income in form of savings and to accumulate wealth. Under the Barter system, such storage of wealth was not possible due to perishable nature of certain commodities. As against this, wealth can be easily stored in the form of money without any loss in its value. Thus, store of value as a function of money implies that money can be easily saved and used for future needs. The store of value function of money can be justified because of the following reasons:
i. Money is the most widely accepted as a medium of exchange.
ii. There is no loss in the value of money over time (though, there exists loss of value of money due to inflation but it is negligible). 
iii. Money can be stored conveniently and does not involve any cost.
Under the Barter system, it was difficult for the individuals to save, invest or accumulate wealth in terms of commodities. Money overcame this problem as it is neither a perishable commodity nor the value of money depreciates (negligible depreciation due to inflation). Therefore, money facilitates store of wealth.

Economics

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