What are the three main functions of money?
Correct answer
Answer C: Acting as a medium of exchange, a unit of account and a store of value.
Detailed explanation
Money performs three classic main functions in the economy. As a medium of exchange, it is accepted so that goods and services do not have to be traded directly for one another. As a unit of account, it makes different goods comparable through prices expressed in a common unit. As a store of value, it allows purchasing power to be retained today and used later.
A form of money can perform these functions with varying success. A means of payment may be very convenient for everyday purchases but lose purchasing power over time through inflation. A rare asset may preserve its value better but be inconvenient for small payments. Saying that something is money is therefore not a complete assessment of its quality. Only examining the three functions separately shows what a form of money is suitable for and where its limits lie.
Coins, banknotes and bank balances are forms of money. Credit cards, bank transfers and wallets, by contrast, are tools for transferring or managing money.