Functions and Characteristics of Money

This video tutorial covers the role of money in an economy, focusing on its definition, liquidity, and the types of assets considered as money. It explains the concept of liquidity and distinguishes between narrow and broad money. The video also outlines the four main functions of money: medium of exchange, store of value, unit of account, and method for deferred payments. Examples are provided to illustrate these functions, and the video concludes with additional resources and questions for further exploration.

What is the primary characteristic of a liquid asset?

• It is always a long-term investment.

• It cannot be owned by an organization.

• It is always in the form of physical currency.

• It can be easily converted into goods and services.

Which of the following is considered narrow money?

• Short-term government bonds

• Houses

• Notes and coins in circulation

• Shares

What is the relationship between liquidity and the definition of money?

• All assets are considered money regardless of liquidity.

• Money includes assets with varying degrees of liquidity.

• Money is only defined by its physical form.

• Only physical assets are considered money.

What is one of the main functions of money?

• To act as a method for deferred payments

• To be a physical asset

• To be a form of barter

• To be a long-term investment

Why is money considered a store of value?

• It is always in the form of physical currency.

• It is a form of barter.

• It retains its value over time and can be used in the future.

• It can be exchanged for goods and services immediately.

How does money function as a medium of exchange?

• It is used to measure the value of goods and services.

• It is stored for future use.

• It facilitates the exchange of goods and services by providing a common medium.

• It allows for the direct exchange of goods without any intermediary.

What problem does money solve compared to a barter system?

• It ensures all goods are perishable.

• It removes the need for a double coincidence of wants.

• It allows for the direct exchange of goods.

• It eliminates the need for a common medium.

Which function of money allows it to be used to settle debts?

• Unit of account

• Method for deferred payments

• Store of value

• Medium of exchange

Which of the following is NOT a function of money?

• Medium of exchange

• Store of value

• Physical asset

• Unit of account

What is the impact of inflation on the store of value function of money?

• It increases the value of money over time.

• It has no impact on the value of money.

• It erodes the value of money over time.

• It makes money more liquid.