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1. Money
as a Medium of Exchange:
The function of money as a medium of exchange solves
all the difficulties of barter system. There is no necessity
for a double coincidence of wants in the money economy.
The man with cow who wants to purchase cloth need not
seek a cloth seller who wants a cow. He can sell his
cow in the market for money and then purchase cloth
with the money obtained. |
2. Money as Measure
of Value:
In money economy values of all commodities are expressed
in terms of money. Money is like the yard stick of
cloth merchant, as yard-stick measures all varieties
of cloth, money measures the value of all varieties
goods. This function
of money makes transactions easy and also
fair
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3. Standard of Deferred
Payment:
In a money economy the contracts are made for future
payments terms of money instead of goods and promise
to repay the loan in money. In this way money is the
standard of deferred payments. This function stimulates
all kinds of economic activities wjtich depend on
borrowed money.
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4. Money as a Store
of Value:
Goods cannot be stored because they are perishable.
People receive their incomes in money form and keep
their savings in money form in banks.In this way,
money is used to store value of commodities.
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5. The essential or
primary functions of money are:
a) To
serve as medium of exchange.
b) To
serve as a measure of value.
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The later two functions are of secondary importance
because they; derived functions. In modern economy,
money plays a very important role. Its disappearance
would cause disappearance of the economy itself.
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