The function of money that enables money to be used for future purchases 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 B) store of value.
Explanation:
Money serves several key functions in an economy, one of which is the ability to act as a store of value. This function allows money to maintain its value over time and be used for future transactions or purchases. In other words, it enables people to save their wealth in the form of money and be confident that it will still hold purchasing power when they decide to use it in the future. This is important because it provides individuals and businesses with the ability to plan, save, and make decisions based on the expectation that their money will not lose significant value quickly.
For money to be an effective store of value, it needs to meet certain criteria. First, it should be durable and not easily devalue over time. Inflation is a key factor that can diminish the store of value function of money. If inflation occurs at a high rate, the purchasing power of money decreases, which undermines its ability to be a good store of value. Central banks and governments typically try to manage inflation to ensure that money retains its purchasing power over time.
Other functions of money include:
- Medium of exchange (A): This refers to money’s ability to facilitate transactions between buyers and sellers. Money is universally accepted in exchange for goods and services, eliminating the need for a barter system.
- Unit of account (C): Money serves as a common measure that helps people compare the value of goods and services. It allows businesses and individuals to keep track of costs and profits in a standardized way.
- Measure of power (D): This is not typically considered a standard function of money in economic theory.
Thus, while all these functions are important, the ability of money to be a store of value is the function that allows individuals and businesses to save and plan for the future.