Question

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

Answer 1

Unit of Account:

Money serves as a common medium or unit of value. The goods and services are of different types and are measurable in different units such as, meter, litre, gram, etc. Money has provided a common yardstick to measure all these different units in a common denomination known as price. This has made different goods and services comparable to each other in terms of their respective prices.
Under the Barter system of exchange, there was no common unit for measuring the value of one good in terms of other good for the purpose of exchange. For example, a horse cannot be measured in terms of rice in the case of exchange between rice and horse. However, money solved this problem by measuring the values of different goods in terms of a common denomination, i.e. Rupees, Dollars, etc.