Economic functions of money

Money is generally considered to have three economic functions:

A medium of exchange. This is its most important role. Without money we would live in a barter economy where we would have to trade goods and services for other goods and services. If I had fish but wanted bread, I would need to find someone who was in the precise opposite situation. In a monetary economy I can trade fish for money with one individual and money for bread with another. Money solves what is called the double coincidence of wants.

A unit of account. In a monetary economy, all prices may be expressed in monetary units, which everyone may relate to. Without money, prices must be expressed in units of other goods and comparing prices are more difficult. You may find that a grilled chicken costs 2 kilos of cod in one place and 4 kilos of strawberries in another. Finding the cheapest grilled chicken is not easy.

Store of value. If you are a fisherman and have a temporary surplus of fish that you want to store for the future, storing the fish might not be a great idea. Money, on the other hand, stores well. Other commodities, such as gold, have this feature as well.

COMPREHENSIVE CHECK

Task 1. Decide whether these sentences are true or false. Correct the false ones.

1. Money is defined as any commodity or token that is generally accepted as payment of goods and services.

2. In most countries, one can identify three “types of money”: coins, bank deposits and gold.

3. The total value of all the money in a country at a given point in time is called the monetary economy and this is an important macroeconomic variable.

4. If you have money in an account in a bank and a debit card, you cannot pay for goods and service using the card in most places.

5. USD is money in the United States but not in the U.K.

6. Gold was money in some countries in the middle ages and today gold is still money.

7. Without money we would live in a barter economy where we would have to trade goods and services for other goods and services.

Task 2. Give your own explanation of the following.

- Bank deposit;

- A medium of exchange;

- Monetary economy;

- Barter economy.

LANGUAGE ACTIVITY

Task 3. Match the synonyms.

1. to define 2. to supply 3. to purchase 4. to borrow 5. to exchange 6. to trade

a) to barter b) to lend c) to describe d) to provide e) to buy f) to sell g) to take

Task 4. Match the formal phrases on the left with the informal phrases on the right.

1. I deposited some money. 2. I withdrew some money. 3. The funds have been transferred. 4. My account is overdrawn. 5. My account was debited. 6. I used an ATM. 7. I made a balance inquiry. 8. It is paid by standing order.

a) The money has been sent. b) I paid in some money. c) It goes out of my account every month. d) I went to a cashpoint. e) I took out some money. f) I’m in the red. g) I checked my balance. h) It went into my account. i) It went out of my account. j) I’m broke.

Task 5. Match the money collocations with the correct definitions.

1. to earn money 2. to raise money 3. to donate money 4. to steal money 5. to win money 6. to find money 7. to lose money 8. to spend money 9. to save money 10. to lend money 11. to borrow money 12. to withdraw money 13. to waste money 14. to inherit money

a) to receive money from somebody who has died; b) to take money out of a bank account; c) to use money on something you don’t need; d) to give money as a gift; e) to give somebody money that they must return; f) to get money from people for a purpose; g) to give money to an organization; h) to keep money for future use; i) not to have money anymore; j) to give/pay money for something; k) to ask for money from somebody; l) to have to pay somebody the money they gave you; m) to get money by working; n) to take money from somebody without permission; o) to get money in the lottery, quiz show etc; p) to get money from somebody that you must return; q) to discover by chance.

WRITING

Translate the text into English in written form.