Money serves all of the following functions except:
A) medium of exchange.
B) store of value.
C) unit of account.
D) measure of power.
The correct answer and explanation is :
The correct answer is D) measure of power.
Explanation:
Money is a fundamental concept in economics, and it serves several important functions in any economy. These functions are outlined as follows:
- Medium of Exchange: Money is primarily used as a medium of exchange, which means it facilitates transactions between buyers and sellers. Instead of bartering, where goods and services are exchanged directly, money allows individuals to buy and sell goods or services more efficiently. It eliminates the need for a double coincidence of wants, a key limitation in barter systems. For example, when you go to a store and buy something, money is used to facilitate that exchange.
- Store of Value: Money also serves as a store of value, meaning it can be saved and retrieved later without losing its value. This is important because it allows individuals to defer consumption to a later date. For money to serve this function effectively, it needs to maintain its purchasing power over time. Inflation or deflation can affect this function, as the value of money can either decrease or increase, impacting how much it can buy in the future.
- Unit of Account: Money is used as a unit of account, which means it provides a standard measure of value. It allows people to compare the values of goods and services consistently. Prices of items are quoted in terms of money, making it easier to understand and compare how much things cost. For instance, a loaf of bread might cost $2, and a car might cost $20,000. These comparisons would be difficult in a non-monetary system.
- Measure of Power: This option is incorrect because “measure of power” is not a recognized function of money. While money can certainly influence power dynamics (e.g., those with more money may have more influence or control), it is not formally considered one of its core functions. The primary functions of money revolve around exchange, storage, and measurement of value, not the measurement of power.
In conclusion, money serves as a medium of exchange, a store of value, and a unit of account, but it does not function as a measure of power.