Unit of account, standard for deferred payment.

Money alsoactsas a measuring unit to assess the relative values of different commodities. This is distinct from its function of a medium of exchange, because a unit of account could in principle be used merely to assign prices rather than act as a means of payment. For example the guinea is used as a unit of account in many of London’s prestigious auction rooms, yet there is no such thing as guinea note or coin for actual use in transactions.

Money also performs this measurement function over time when it becomes a standard of deferred payment. If I wish to borrow a given sum now, an interest will be added to it so that I know how much I will have to repay in the future. Contracts can also be made for delivery of goods in the future. Inflation erodes the usefulness of money in this role.

Ø Comprehension:

1. What are three basic functions of money?

2. Why is barter a clumsy way of doing business?

3. In what case can money be more than a temporary store of value?

4. Why do people continue to hold money even in the period of rapid inflation?

5. What is ‘deferred payment’?

Ø True-false questions:

Ø Summarizing:

Complete the following sentences to summarize the text above:

1. Anything can act as money if it is generally accepted …

2. In all advanced economies, the greater part of the supply of money consists of…

3. There are three distinct functions of money: a medium of exchange,…

4. Money also performs the measurement function over time, when it becomes…

Ø Viewpoint:

Is it still popular in our country to keep some part of wealth in the form of money or do people tend to shift to other financial assets?