Section 2 Money Ex 2.6
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Explaination on Money
Money is a fundamental concept in economics and daily life. It serves as a medium of exchange, a unit of account, a store of value, and a standard of deferred payment. Here’s a breakdown of these functions:
Medium of Exchange: Money is widely accepted in exchange for goods and services, facilitating transactions without the need for barter, which requires a double coincidence of wants.
Unit of Account: Money provides a common measure for valuing goods and services, making it easier to compare prices and keep accounts.
Store of Value: Money can be saved and retrieved in the future to purchase goods and services. It maintains its value over time, although inflation can erode its purchasing power.
Standard of Deferred Payment: Money is accepted for settling debts or obligations that are due in the future, providing a standard measure for future payments.
Money can take various forms, including physical currency (coins and bills), digital currency, and bank deposits. The value of money is typically backed by the trust and confidence of the economy and the stability of the issuing authority, such as a government or central bank.
Historically, money has evolved from commodity money (like gold or silver) to representative money (like paper notes redeemable for a commodity) to fiat money (currency that has value because a government maintains its value and people have faith in its worth). Today, digital forms of money, including cryptocurrencies, are becoming increasingly prominent.