The function of money that enables prices of goods and services to be quoted is called:
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 C) unit of account.
Explanation:
The function of money that enables prices of goods and services to be quoted is called the unit of account. A unit of account refers to the standard numerical unit of measurement that provides a consistent measure of value. This function allows individuals and businesses to compare the relative worth of goods, services, and assets. Money as a unit of account provides a clear way of stating prices and helps in making financial decisions, contracts, and planning.
For example, when we buy a cup of coffee, the price is quoted in a specific unit of account, like dollars or euros. The unit of account allows us to understand the value of that coffee in relation to other goods and services. Without this function, comparing the value of different products would be difficult, and there would be confusion in making transactions. The unit of account thus simplifies trade by providing a consistent measure for prices.
Money serves three primary functions in the economy: as a medium of exchange, a store of value, and a unit of account. While all these functions are important, the unit of account function is specifically related to the way we assign values and measure prices for goods and services.
To elaborate on the other options:
- A) Medium of exchange: Money functions as a medium of exchange because it is widely accepted in exchange for goods and services. It solves the problem of barter, where people exchange goods directly without a standard measure of value.
- B) Store of value: Money also acts as a store of value, meaning it can be saved and used in the future. It preserves purchasing power over time, provided there is minimal inflation.
- D) Measure of power: This is not a recognized function of money in economic theory.