The Four Functions of Money
What money is really for: acting as a medium of exchange, a store of value, a unit of account, and a means of deferred payment, and why money works so much better than swapping goods by barter.
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What is money really for?
Money seems obvious until you ask what job it actually does. Economists say money carries out four jobs at once: it lets us trade, it lets us save, it lets us price things, and it lets us pay later. Money is also far more than the notes and coins people carry. This module works through all four functions and why they beat swapping goods.
Money words to know
Learn these four jobs money does.
Money against barter
Before money, people swapped goods directly. See why money is better.
Tie each function to a real action
In the exam, do not just list the four functions; tie each one to a real thing people do. One handles everyday trade so no swap of goods is needed. One holds wealth safely until it is wanted. One puts a clear value on items so they can be weighed against each other. One covers paying for something over time rather than all at once. And keep in mind that money is far more than the notes and coins in a pocket.
Match the function
- medium of exchange
- store of value
- unit of account
- means of deferred payment
- buy and sell without swapping goods
- save now and spend later
- set and compare prices
- borrow now and repay later
Match the example
- paying for shopping by tapping a card
- keeping savings in a bank for next year
- comparing two phones by their prices
- repaying a loan in monthly amounts
- this is a medium of exchange
- this is a store of value
- this is a unit of account
- this is a means of deferred payment
Which function is this?
Which function of money lets people compare the value of different goods by their prices?
- Unit of account
- Medium of exchange
- Store of value
- Means of deferred payment
True about money
Select the TWO true statements about the functions of money.
- As a medium of exchange, money removes the need to barter
- As a store of value, money can be saved and used later
- Money is only the banknotes and coins in circulation
- A unit of account means money loses value over time
Work out the repayment
You borrow money and repay it in 6 equal monthly payments of 50 pounds each. Multiply the monthly payment by the number of months to find the total repaid in pounds. What is the answer?
Order the money story
Put the steps that show why money replaced barter in order, earliest first.
- People must swap goods directly for what they need
- This works only if each wants what the other has
- A money that everyone accepts is introduced
- Now anyone can buy and sell freely
Complete the functions
Money used to buy and sell without swapping goods is acting as a _____ of exchange. Money saved to use later is a _____ of value. Money used to set and compare prices is a _____ of account. Money that lets a debt be repaid later is a means of _____ payment.
Spot the true money facts
Tap the TWO statements that are true about money.
- money lets people trade without needing to swap goods
- money can be saved and used at a later time
- money is only the notes and coins people carry
- money makes it impossible to compare prices
Name the function
Read each case and choose the function of money it shows.
- Jo buys lunch by tapping a card at the till. Which function of money is this?
- Sam keeps 200 pounds in a savings account to use next year. Which function is this?
- A shop lists a coat at one price and a jacket at another so buyers can compare. Which function is this?
Explain the functions of money
Explain the four functions of money and why money works better than barter.
- Name and explain each of the four functions of money
- Give an everyday example of each function
- Explain one problem with barter that money solves