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:
Money serves several important functions in the economy, one of which is to act as a unit of account. This means that money provides a standard measure of value, which allows goods and services to be priced in consistent terms. By using money as a unit of account, we can compare the value of different goods and services in a standardized way, which simplifies the process of making transactions and conducting economic calculations.
Here’s a breakdown of the four key functions of money:
- Medium of Exchange:
This is perhaps the most obvious function of money. It allows people to exchange goods and services without the need for a barter system. For example, instead of directly exchanging a loaf of bread for a pair of shoes, money facilitates the transaction, as both parties can use it to buy what they want. Money as a medium of exchange eliminates the inefficiencies of barter, where finding a mutually acceptable trade can be difficult. - Store of Value:
Money also serves as a store of value, meaning it allows individuals to save their earnings and access them later. The value of money is retained over time (though inflation can erode its purchasing power). This function makes money a reliable means for people to save for future expenses or investments. - Unit of Account:
This function of money is essential for determining the value of goods and services. When prices are expressed in terms of money, it provides a common scale for comparing the value of different items. For instance, if a car is priced at $20,000 and a house at $200,000, the use of money enables us to easily compare the relative values of these two items. - Measure of Power (Incorrect Option):
This is not a recognized economic function of money. While the value of money can influence the power or economic standing of individuals, this is not one of the core functions of money defined in economics.
Thus, the function of money that enables the quoting of prices for goods and services is the unit of account, making C the correct answer.