A monetary unit or measure of worth for which accounts are kept and values indicated.

University of Pittsburgh

Butler University

University of Michigan - Ann Arbor

There are three key functions of currency: 
- Unit of account 
- Medium of exchange 
- Store of value 

Functions of Currency 

Unit of Account 

A medium of exchange is an item, such as bank deposits, notes, or coins, that is widely accepted for the purpose of buying and selling goods and services. This function is distinct from being a unit of account or a store of value and becomes particularly essential in an economy with multiple goods.

Medium of Exchange

A store of value is an asset, commodity, or currency that can be saved and retrieved at a later time while retaining its purchasing power. In a simplified economy, a physical good like grain can serve this purpose. In a modern economy, money is a common store of value, alongside other financial assets.

Store of Value

An isolated community wants to move away from a direct trade (barter) system and adopt a single item to use for all transactions. They need this item to be easily used for buying goods, to hold its worth over time, and to provide a common measure of value for pricing. Which of the following options would best serve this community's needs?

Based on the three primary functions of a currency, evaluate the effectiveness of using ripe tomatoes as money in this economy. Identify which function is most poorly served and explain why.

Evaluating an Unconventional Currency

Match each economic scenario with the primary function of currency it best illustrates.

Consider a non-monetary asset, such as a famous painting or a rare collectible car, that is known to appreciate in value over time. Critically evaluate how well this type of asset would perform in fulfilling the three essential functions of a currency for an entire economy. Justify your reasoning for each function.

Evaluating an Asset as Currency

In an economy experiencing a prolonged period of very high and unpredictable price increases, which of the three primary functions of currency is most significantly weakened? Justify your answer by explaining the connection between the price instability and the erosion of this specific function.

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