Chapter 3: What is Money?
Wealth not only includes money, but also stocks, bonds, land, furniture, cars, and houses. Income is a
flow of earnings per unit of time.
Money serves three primary functions:
a) a medium of exchange
b) a unit of account
c) a store of value
Medium of Exchange – money is used to pay for goods and services
Unit of Account – measures value in the economy
Store of Value – it is a repository of purchasing power over time
How good a store of value money is depends on the price level, because its value is fixed in terms of the
price level. A doubling of all prices means that the value of money has doubled. During a period of high
inflation, when the price level is increasing rapidly, money loses value rapidly, and people will be