Money’s Functions

Before we analyze the demand for money, let’s note, money’s functions:

• By far the most important function of money is to serve as a medium of exchange. without money we Would be constantly roving around looking . for someone to barter with. We are often reminded of money’s utilitywhen it does not work properly. Think about the case of Russia in the early 1990s,when people spent hours in line waiting for goods and tried to get dollars or other foreign currencies because the ruble had ceased to function as an acceptable means of exchange.

• Money is also used as the unit of account, the, unit by which we measure the value of things. Just as we measure weight in kilograms, we measure value in Morley,The use of a common unit of account simplifies economic life enormously.

• Money’ is sometimes used as a store of value; it allows value to be held over time. In comparison with risky assets like stocks or real estate or gold, money is relatively risk less. In earlier days, people held currency as a safe form of wealth. Today, when people seek a safe haven (or their wealth, they put some of their assets in cash and checking deposits (M,). However, the vast preponderance of wealth is held in other assets,such as savings’accounts, stocks, bonds, and real estate

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