Question
Download Solution PDFWhich of the following is a dynamic function of money?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Basis of credit and liqidity.
Key Points
- The Dynamic functions of money can be stated as the process by which money actively influences the economic system through its impact on the volume of production, price level, interest rates, and distribution of income and wealth. The credit and liquidity are influenced.
- The function of Money is :
- Medium of exchange
- Unit of account
- Store of value
- Medium of Exchange: When money is used to intermediate the exchange of goods and services, it performs a function of a medium of exchange.
- Unit of Account: It is a standard unit of measurement of the market value of goods, services, and other transactions.
- It is a standard of relative worth and deferred payment and is a necessary prerequisite for the formulation of commercial agreements that involve debt.
- Store of Value: When the money is reliably saved, stored, and retrieved it acts as a store of value.
- Standard of Deferred Payment: It is used as a standard for future payments.
- However, the "problem in storage" is not related to the function of money. Actually, part of the benefit of money is that it eliminates the storage issue inherent in a barter system. Money doesn’t physically deteriorate and can be stored or saved for future use with ease.
Last updated on May 28, 2025
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