Quiz 21: The Monetary System
Money: Money is considered as the very liquid asset which can be easily convertible and readily available to use as a medium of exchange. Money Supply: Money supply is the total amount of money in circulation in a country. The money supply can include paper currency, metal coins and balances held in checking and savings accounts. Credit accessible with credit cards is considered as loan not money. Hence, the option 'c' is correct.
Functions of money: 1. Medium of exchange 2. Unit of account 3. Store of value Medium of exchange: Now-a-days, money can be used for buying goods and services. If there were no money, goods and services can be exchanged through the process of barter system. Unit of account: Money can measure the value of goods and services. Store of value: future transactions are possible with the help of money. Money's value can be retained over time. a) U.S penny is used as money in the country U's economy, because it serves as a medium of exchange, store of value and unit of account. b) Mexico peso is not used as money in the country U's economy, because it is not used as medium of exchange or unit of account in country U, it could serve as a store of value. c) Picasso painting is not used as money in the country U's economy, because it cannot be used as medium of exchange or unit of account, it could serve as a store value. d) Credit card is not used as money in the country U's economy. It is an instrument of short-term borrowing. It is not a really a medium of exchange, nor is it a store of value.
Money is a set of assets that people regularly use for buying and selling of goods and services. Money is different from other assets in the economy because it is the most liquid asset available. It can be readily used as a medium of exchange, unit of account and a store value. While other assets like buildings, lands or shares in a company are valuable and considered as wealth but they cannot easily be used as a medium of exchange. As the money is readily liquid able it is more prominent than any other asset in the economy. Other assets being less liquid.