Money is a medium of exchange. This means that money has value because we agree it does and it can be used to buy things. Money is a useful measure of value because it has universal value in exchange for goods and services. The functions of money as a medium of exchange are: Whenever people barter, they give up something they value less for something they value more. For example, if you have milk and your friend has apples, you’ll probably trade with him. But what if your neighbor has chickens? Or someone else offers to trade books or cars? You see where this is going… If everyone only trades what they have that they value more, bartering becomes much more difficult. And if everyone values the same thing (like money), trading becomes much easier.
How Does Money Act As A Medium Of Exchange?
- Money’s moneyness is its value. People value money because it has utility in exchange for goods and services. To illustrate: If you trade your new car for a cup of coffee, you won’t trade your $20 bill with him. If a mugger wants to rob you, are you going to give him the $20 bill that you’ve worked hard to earn? Of course not! You’ll only give up items of lesser value in exchange for the money that you have earmarked for a means of purchase.
- Money is used as a medium of exchange because it can be used in any fraction or whole (1’s and 0’s). In other words, the currency we use doesn’t have to be physical like gold or paper currency (dollars, yen, etc.)—it can also be intangible like a stock or bond that represents ownership of an asset such as gold, oil, or natural resources.
- People use money because they want to. If enough people want to exchange goods and services with each other, then we will barter using money. But if no one wants to barter, then we’ll just go back to using whatever we have that’s of value—buying and selling it to each other; or consuming it ourselves.
- Money is a store (and savings) of value. With the introduction of coins and banknotes in the Dark Ages, people began to put their treasure into coin purses (bags). And as the value of coins increased over the years, the purses became small money bags (hoards) that contained multiple units of currency—which is how money became a store of wealth as well as a medium for exchange.
- Money is used as a means by which people can pay back debts or pay off obligations if they are granted certain privileges from others in return for delivering payments on time or paying interest on loans. The most common way this works today is through credit cards which allow us to set up an account with certain amounts we have earmarked for specific purchases; our monthly payments go directly into some sort of bank fund that holds our savings or other monetary assets.
- Money is used as a means by which individuals and groups can raise funds to pursue dreams. In other words, the more people accept money as a medium of exchange, the more money starts to move in real-time and space—in other words, we start to have an economy with a banking system and so on. This is how the game of capitalism works: as more people agree to use money as a medium of exchange in return for goods or services that they desire, then there will be demand for certain goods and services because people will want to make purchases using their currency—and if it’s valuable enough about competing currencies (i.e., gold), then people will continue this process.
Payment for Goods and Services
- Money is an easy way to pay for things and get what you want. For example, say your car breaks down and needs to be fixed. You can sell it to a car mechanic, or you can use your money to buy the parts and have someone else fix them for you. Either way, you’ve avoided spending all day trying to collect everything you need from people who likely don’t have what you need in their trade pile.
- Money is also a good way to pay for goods and services because when the government prints more money, that means it’s easier for people with money to buy more stuff from other people who have things they want or need but had trouble finding someone willing to trade for them before. Since there will be more dollars available in circulation (because the government printed more of them), that means each dollar can buy more stuff (because each dollar will be worth less). If a recession hits and there are fewer goods available because the industry isn’t producing as much as it used to produce, printing new money could help the economy by making it easier for everyone with cash on hand to buy things they want or need without driving prices up too much (which might happen if everyone tried buying things at once).
- You can use the money to pay for things without having to give up the money you want to keep. This is why some people prefer to save their money instead of spending it on anything in particular. If you have $100 in your wallet, you can take it out and spend it all at once, or you can put it into a savings account that pays interest – as long as you leave it there, your bank will keep paying you a certain amount each month.
- In certain situations people need money from other people who don’t want or need them as much as they want or need that person’s stuff. For example, if someone needs medicine but doesn’t have anyone willing to trade with them, they might be willing to trade their hard-earned cash in exchange for medicine.
- People who don’t have enough money to pay for something in full can sometimes use their credit or loan card to purchase it, then pay for the balance later on. For example, say you have $100 in your bank account, but you want to buy a new shirt that costs $40. You could take out a loan from the bank and use that $40 from your savings as collateral; in other words, the money you borrowed is guaranteed with the money you already have. If you don’t pay back the loan amount plus interest before your deadline date (usually about a month or so), then The Bank That You Borrowed From can take the $100 from your account and keep it until you repay them.
- When you go shopping at a store like Walmart, they keep track of what you buy as a way to make sure they don’t give someone more than they spent while making sure they also aren’t giving anyone less than they spent – this is how many stores make their profit, by getting more money back when some people overspend than they lose when others underspend while making purchases.
Store of Value
- Money is one of the most popular stores of value because it can be used immediately instead of waiting for a future date for something else to happen.
- When you take money out of the bank, you can spend it without having to save the money or wait until you have enough to pay for something you want or need, like when someone buys gas or food with cash instead of using their debit card.
- The fact that money is physical makes it a lot easier to store than other forms of wealth, such as gold bars/jewelry/weapons, and artwork. If a person had $100 in their pocket but they wanted to trade $100 worth of land they owned, they would first have to go back home and get the $100 worth of land before trading anything, while if they kept their $100 on hand they could just give it away while trading at the same time.
- Among the most popular stores of value are money and stocks.
- Some people store their wealth in their house or car, though those things require maintenance and insurance, which can be costly, whereas money does not.
- Some people don’t have enough money to buy what they want today, so they save up for it instead to pay for it later; this is a form of saving for a future date when someone will have what he or she wants – in this case, a new car – immediately after paying for it then using it; but some people would rather spend their money on something else instead of on a car now since they don’t need one yet but would like to enjoy something else with their hard-earned today!
- Money makes it possible for people to provide, borrow and repay different forms of stores of value.
- Money provides a common and trusted store of value that everyone can use as a way to exchange wealth with others while also ensuring they aren’t cheated or ripped off by others. If a person wanted to buy something from another person but they didn’t trust each other, the buyer wouldn’t be able to pay for anything, because the seller would not accept anything else in exchange for their good or service; that is why money is so valuable – because it prevents people from having problems when an agreement cannot be reached and both sides refuse to back down in what they want, like when children play games with one another.
- People must agree on what stores of value should be traded against money for money to have any worth or value at all: you can have $100 but if there is no place where you can trade it for any good or service, then you won’t be able to buy anything at all.
- When money is used by everyone in their daily lives, everyone has the chance to do business and trade with one another without having to worry about getting cheated out of their earned wealth; if I wanted something from someone else but I didn’t trust him/her enough that they wouldn’t just take my $100 without giving me anything in exchange, then we would not be able to do business together; but with money, we have a trusted store of value that everyone can use to enforce our agreements and protect our wealth while we’re doing business.
- The more money a citizen has access to, the more wealth he or she can produce and use for the benefit of their livelihoods and businesses; if a person is broke, he or she can’t do much in the way of helping their family or community because they cannot afford to buy anything that they need; but if they have $1 million in the bank, they will be able to buy more items and help more people throughout their communities.
- If a society wants to improve its standard of living, it must provide access to financial services like banking and borrowing at low-interest rates so that everyone has access to capital for investment in education, training, and technology. If 80% of all citizens don’t have any money at all then it means that only 20% of them will bother learning how to get access to capital; but if every person was educated on how money works as an exchange value when trading wealth with others, then no matter how poor you are today, you can help your family and community tomorrow by providing value for them through your labor when you exchange it for money by going out there and finding a job that pays someone else today so that you may get paid tomorrow!
No one thing is best. People naturally use whatever they value most to buy things. If people use something as money, it is money. The important thing is that people agree to use something as money. There is no single best money because cultures and situations are different. People will accept whatever they value as money. If a society uses cows to buy and sell things, cows are money.