Question

What are the four functions that money serves

Short answer

The four functions that money serves are:

1. Store of value.

2. Standard of deferred payment.

3. Medium of exchange.

4. Unit of account.

Step-by-step solution

Concept of how money serves.

Money is used to purchase or pay for goods and services. It is a means of exchanging products or services between two persons. Both sellers and purchasers recognize it.

Explanation of solution.

Four functions of money are as follows:

$1.$Store of money: Money is a highly liquid asset that can be used as a store of value (Liquid asset means easily can be spent when require). Money has the ability to retain its purchasing power in the future.

$2.$Standard of postponed payment: This indicates that anything can be purchased today and paid for later. Agreements and loans are made in order to make future payments. As a result, the deferred payment standard enables for payment of goods and services received today in the future.

$3.$Medium of exchange is: Money acts as a middleman between the buyer and the vendor. If one person wants to buy something, he has to give something else to the other person in a barter system, but now any items or services can be purchased in exchange for money.

$4.$Unit of account: The value of money of those things and services is now used to calculate the worth of those goods and services. It's a common denominator, which makes weighing trade-offs easier.