What are the Functions of Money? AP Macro Definitions & Examples

📚 Quick Study Guide

💰 Medium of Exchange: Money facilitates transactions, eliminating the need for a 'double coincidence of wants' inherent in barter systems. 📏 Unit of Account: Money provides a common standard for measuring the relative value of goods and services. ⏳ Store of Value: Money allows individuals to transfer purchasing power from the present to the future. 📊 Standard of Deferred Payment: Money enables transactions involving future payments, like loans.

Practice Quiz

1. What is the primary function of money that eliminates the need for a 'double coincidence of wants'?
   1. Store of Value
   2. Unit of Account
   3. Medium of Exchange
   4. Standard of Deferred Payment
2. Which function of money allows us to easily compare the relative costs of a new phone versus a used car?
   1. Medium of Exchange
   2. Unit of Account
   3. Store of Value
   4. Liquidity Trap
3. If you save money today to buy a new gadget next year, which function of money are you utilizing?
   1. Medium of Exchange
   2. Unit of Account
   3. Store of Value
   4. Standard of Deferred Payment
4. Which function of money is most important when taking out a loan to buy a house?
   1. Medium of Exchange
   2. Unit of Account
   3. Store of Value
   4. Standard of Deferred Payment
5. Inflation erodes which function of money?
   1. Medium of Exchange
   2. Unit of Account
   3. Store of Value
   4. All of the above
6. In a barter system, what is the biggest obstacle to completing a transaction?
   1. Lack of a store of value
   2. Lack of a standard of deferred payment
   3. The double coincidence of wants
   4. Absence of unit of account
7. Which of the following is NOT a function of money?
   1. Medium of Exchange
   2. Hedge against inflation
   3. Unit of Account
   4. Store of Value