Functions of Money

Features of Money

Primary Function

Secondary Function

Primary Function

Medium of Exchange

Unit of Account

Store of Value

Pricing

medium of exchange

It is accepted as medium of exchange for the settlement of economic transactions.

Sale and Purchase of different products can be made through money

unit of measurement

It is used as accounting measure for different services/things.

Meaning money works as a common denomination, the value of all goods and services are expressed in terms of money.

store of value

Money is the most liquid assets from all the assets therefore it is easier to store value in the form of money.

Other assets may depreciate over time.

legal tender

It is used as legal tender for repayment of debts, wages, interest, profit etc after time lapse.

pricing

It is used as standard in the development of pricing mechanism for economic activities

Secondary Function:

Instrument for lending

Instrument of economic policy

tool of monetary measurement

aids to production and trade

instrument for lending

People save money and deposit it in to banks. The banks advance these savings as loans to businessmen and earn profit by charging interest.

instrument of economic policy

Money is an instrument of an economic policy of the government. Money is the powerful factor to achieve growth, reduce unemployment and maintain expansion of economic activity.

tool to monetary management

Money helps in increasing output and employment. Money is also help in determining the distribution of wealth among the members of society.

aids to production and trade

Barter difficulties can be solved with the help of money. It helps in the production of goods and services and facilitates expansion of trade.