Medium of Exchange
What is a medium of exchange?
It is something that people use to buy and sell goods and services.
What does it mean for money to be a store of value?
It can maintain its value over time, allowing people to save and spend later.
What is a unit of account?
It is a standard numerical unit of measurement that provides a consistent measure of value.
What does it mean for money to be a standard of deferred payment?
It can be used to settle debts or obligations in the future.
Give an example of a medium of exchange in today's economy.
Cash (dollars, euros, etc.) or digital currency (like Bitcoin).
Name one advantage of using money as a store of value.
It preserves purchasing power over time.
Why is it important for money to function as a unit of account?
It helps people compare the value of different goods and services.
Give an example of a situation where money acts as a standard of deferred payment.
Taking out a loan to buy a car and paying it back later.
Why is it important for money to serve as a medium of exchange?
It facilitates trade by eliminating the need for bartering.
How can inflation affect money's ability to act as a store of value?
Inflation can decrease the value of money, making it less effective for saving.
How do businesses use the unit of account concept?
They price products and keep financial records based on a common unit.
Why is it important for money to serve as a standard of deferred payment?
It enables credit and borrowing, which are essential for economic growth.
How does a medium of exchange differ from bartering?
A medium of exchange is universally accepted, while bartering relies on mutual agreement.
Give an example of something that is NOT a good store of value.
Items that spoil quickly, like food, are not good stores of value.
Explain how a unit of account can help in budgeting.
It allows individuals to track income and expenses in a consistent manner.
How does this function of money affect the economy?
It allows for investments and spending based on future income.
What would happen to trade if no medium of exchange existed?
Trade would become much more complicated and inefficient.
Why do people choose to save money instead of spending it all?
To prepare for future expenses or emergencies.
What might happen if there were no unit of account in an economy?
It would be difficult to set prices or make financial decisions.
Discuss a potential risk of using money as a standard of deferred payment.
If borrowers cannot repay their debts, it can lead to financial crises.