The Functions of Money (AS/A LEVELS/IB/IAL)
The Functions of Money (AS/A LEVELS/IB/IAL)
Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes
The functions of money
There are three key functions of money:
Medium of Exchange
Money is used around the world to buy and sell products. This is the main function and helps to facilitate transactions
Measure of Value
It provides a uniform value for products and services allowing them to be compared.
Store of Value
Money can be stored in banks to gain interest. Money is also very liquid and can easily be used to purchase goods and services.
AQA Spec – Additional Content
Narrow Money and Broad Money
Money Supply – the stock of liquid assets and currency in the economy. It comprises of cash and other money held in the savings account
Narrow Money
This refers to the physical currency and more liquid assets (coins & bank notes) in the central bank
Broad Money
This refers to the entire money supply and includes liquid, as well as less liquid assets
CIE Spec – Additional Content
Keywords and Definitions
Barter
The exchange of goods and services for other goods and services, instead of using money as a medium of exchange
Cash and Bank Deposits
A cash deposit is usually conducted via a money transfer and involves the injection of money into a money market or savings account. When the transaction is complete, the money can be withdrawn
A bank deposit is money being stored in a bank to ensure it is kept safe. The person making the deposit is owed a liability from the bank
Cheques
The person must pay the bank the amount stated on the cheque
Liquidity
Refers to the availability of assets such as cash
Quick Fire Quiz – Knowledge Check
1. Identify and explain three key functions of money (6 marks)
2. Define ‘Money Supply’ (2 marks)
3. Distinguish between Narrow Money and Broad Money (4 marks)
Next Revision Topics
- The Quantity Theory of Money
- The Role of Central Banks
- The Role of Financial Markets
- Financial Markets
- Market Failure in the Financial Sector
- Monetary Policy
A Level Economics Past Papers
