Question

What are the main functions of money? How does money overcome the shortcomings of a barter system?

Answer 1

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 various functions performed by money are

1. Common medium of exchange

2. Store of value

3. Common measure unit

4. Serve as the standard of deferred payments

In barter system, there is lots of drawbacks which includes double coincidence of wants, lack of a common unit of value, difficulty of future payments or contractual payments and difficulty of storage of value and transfer of value which are resolved by the functions of money.