The function of money that enables individuals to exchange goods and services in a common unit of account 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:
Money serves several critical functions within an economy, and understanding these functions is key to understanding its role in facilitating economic activity. The unit of account is one of the primary functions of money.
A unit of account refers to money’s ability to provide a standard numerical unit of measurement that enables individuals and businesses to compare the value of different goods and services. Essentially, it allows for prices to be set, and value to be measured, which is critical in helping people make informed decisions about spending, saving, and investing.
When people buy or sell goods and services, they need a common benchmark for understanding the relative worth of the items they are trading. Money, in this case, serves as a unit of account, providing that benchmark. For example, if a loaf of bread is priced at $2, and a pair of shoes is priced at $50, money helps individuals understand the difference in value between these items through a standardized system of measurement.
Without a unit of account, individuals would struggle to compare the values of different goods and services, as there would be no standardized way to measure their worth. The complexity of bartering (the exchange of goods and services without money) also highlights the need for a unit of account. If you were trading bread for shoes, you would have to negotiate what each is worth without a clear and standardized measure, leading to inefficiency and confusion.
This is where money’s function as a unit of account becomes crucial—it provides clarity and consistency, ensuring that transactions can happen smoothly, and economic decisions are made with a solid understanding of the value involved.
To summarize, money as a unit of account allows individuals and businesses to measure and compare the value of goods and services in a consistent way, making it an essential feature of economic activity.