What are the main functions of money? How does money overcome the shortcomings of a barter system?
What are the main functions of money? How does money overcome the shortcomings of a barter system?
The functions of money can be divided into two categories-
1. Primary or (main functions)
2 Secondary functions
l. The primary functions are of two types:
1. Medium of Exchange: It can be used to make payments for all transactions of goods and services.
2. Measure of Value: It means that the value of all goods and services are measured in the same, standard unit.
ll. Secondary functions are of three types:
1. Deferred Payments: Money is used to make future payments, with no significant penalty.
2. Store of Value: It implies that money retains it value over time.
3. Transfer of Value: Money is used as a convenient mode of transfer of value.
Money overcomes the following shortcomings of the barter system of exchange:
(a) Use of money removed the difficulty of double coincidence of wants in the barter system.
(b) Money facilitates storage of value.
(c) Use of money removed the difficulty of division of commodity.
(d) It removed the difficulty of medium of exchange.
(e) Use of money removed the difficulty of deferred payments.
The functions of money can be divided into two categories-
1. Primary or (main functions)
2 Secondary functions
l. The primary functions are of two types:
1. Medium of Exchange: It can be used to make payments for all transactions of goods and services.
2. Measure of Value: It means that the value of all goods and services are measured in the same, standard unit.
ll. Secondary functions are of three types:
1. Deferred Payments: Money is used to make future payments, with no significant penalty.
2. Store of Value: It implies that money retains it value over time.
3. Transfer of Value: Money is used as a convenient mode of transfer of value.
Money overcomes the following shortcomings of the barter system of exchange:
(a) Use of money removed the difficulty of double coincidence of wants in the barter system.
(b) Money facilitates storage of value.
(c) Use of money removed the difficulty of division of commodity.
(d) It removed the difficulty of medium of exchange.
(e) Use of money removed the difficulty of deferred payments.
