Selasa, 03 November 2009


Money, the medium of exchange is used in one half of almost all exchange. Workers exchange labour services for money . we accept money not to consume it directly but because it can subsequently be used to buy things we do wish to consume. Money is the medium through which people exchange goods and services.
To see that society benefits from a medium of exchange, imagine a barter economy. A barter has no medium of exchange. Goods are traded directly or swapped for other goods.
In a barter economy, the seller and the buyer each must want something the other has to offer. Each person is simultaneously a seller and a buyer. In order to see a film, you must hand over in exchange a good or service that the cinema manager wants. There has to be a double coincidence of wants. You have to find a cinema where the manager wants what you have to offer in exchange.
Trading is a very expensive in a barter economy. People must spend a lot of time and effort finding others with whom they can make mutually satisfactory swaps. Since time and effort are scarce resources, a barter economy is wasteful. The use of money- any comodity generally accepted in payment for goods, services, and debts- makes the trading process simple and more efficient.
The unit of account is the unit in which prices are quoted and accounts are kept.
Money is a store of value because it can be used to make purchase in the future.
To be accepted in exchange, money has to be a store of value. Nobody would accept money as payment for goods supplied today if the money was going to be worthless when they tried to buy goods with it tomorrow. But money is neither the only necessarily the best store of value. Houses, stamp collections, and interest bearing bank accounts all serve as stores of value. Since money pays no interest and its real purchasing power is eroded by inflation, there are almost certainly better way to store value.
Finally, money serves as a standard of deffered payment or a unit of account over time. When you borrow, the amount to be repaid next year is measured in poundsterling . altought convenient, this is not essential function of money. UK citizens can get bank loans specifying in dollars the amount that must be repaid next year. The key feature of money is its use as a medium of exchange . for this, it must act as a store of value as well. And its usually, though not invariably, convenient to make money the unit of account and standard of deffered payment as well.


CLASS : 3 EB 03


NPM : 20207399


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