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The three main purposes of money are : for the purpose of buying and selling products and services (medium of exchange), money is used to measure the value or worth of products and services and finally it is used to store wealth that is easily spent. This means that it is a liquid asset; it can be easily used to purchase goods and services. Having a tangible item such as money eliminates the need for trading exchanging one item for another in bartering.
The three main purposes of money:
- Unit of Accounting
- Deposit of Value
- Means of Exchange
Money serves three main purposes. It is a unit of account, a medium of exchange, and a store of value:
Medium of Payment: Money functions as a medium of exchange when it is utilised to facilitate the exchange of commodities and services.
Unit of Accounting: A standard numerical unit of account for measuring the market value of products, services, and other transactions.
It is a standard of relative worth and postponed payment, and as such, it is a requirement for the formation of commercial debt arrangements.
Money must be divisible into smaller pieces without losing value, fungible (one unit or piece must be seen as equivalent to any other), and have a specified weight or size to be verifiably countable in order to serve as a unit of account.
Deposit of Value: Money must be reliably saved, stored, and retrieved in order to serve as a store of value.
When it is retrieved, it must be useable as a means of exchange in a predictable manner.
Furthermore, the value of money must be consistent over time.
Economists occasionally point out that money has extra roles, such as serving as a standard of deferred payment and a measure of value.
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