Money for understanding the business cycle and concluding

Money allows
consumers to trade indirectly, know prices of goods and provides a means to
save for future purchases. Money has been fundamental in developing our modern
international trade system and has evolved alongside civilisation. There is
debates between economists concerning the origin of cash, its nature, and
primary functions. Is money created by the government or by the market? To solve
this question, we must be critical of the importance for understanding the
business cycle and concluding the appropriate policy tools to eliminate
unemployment and reduce inflation (Kaboub, 2013).

Money is
defined and serves three basic function, a store of value, medium of exchange
and a unit of account. Money stems its value from being a store of value where
it can be saved and used later, smoothing their purchases over time. Consider a
£20 note that you misplaced in a jacket pocket a year ago, once found you will
be delighted because the £20 still has value which has been in effect stored in
the note. Money differs to others that store value such as houses, land and
various commodities as money is easily redeemable for other commodities,
accessible in many convenient denominations and its function of a medium of
exchange makes it appropriate store of value. Money has risks associated being
a store of value as inflation decreases the value of money and periods where
inflation rises rapidly, many rely less on money as a store of value and move
towards other commodities such as gold.

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A unit of account
which provides a common and consistent base for prices. Knowing the price of
goods in monetary terms allows the supplier and consumer to make choices on
quantity supply and quantity demand.  Without
a unit of measurement, accounting, implementing, and establishing value would
be difficult.

A medium of
exchange is money’s most important function as exchanging goods and services is
one of the most universal actions in society and to enable these exchanges people
select and settle on money which can be used to buy and sell from one another
and we all agree to accept money in transactions. Without money, transactions
would be operated in under a barter economy which is problematic as one has to possess
a good with value equal to the good desired. Money effectively removes the
double coincidence of wants issue by acting as a medium if exchange which is
acknowledge by all transactions irrespective of desires for each other’s goods.

There are
two types of money, money that has intrinsic value and money that doesn’t.
Commodity money has other value apart from being used as money and possesses
intrinsic value independently as it contains its own worth. Throughout history
numerous commodities have been utilized as a form of currency, just as the
money’s value derives from material that it consists of and not a slightly
subjective decree from a government body. The opposite to commodity money is
fiat money and it is derived from its value from duties of the law. Fiat money
is intrinsically invalid and cannot be converted for any commodity, it has
value due the government valuing it for a specific purpose.


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