Chapter 5R, Problem 7MCQ

To determine

The correct option that defines the functions that it serves if the money that holds purchasing power over a period of time.

Answer to Problem 7MCQ

Option c is correct.

Explanation of Solution

Explanation for the correct option:

c.

There are three main roles played by money i.e. medium of exchange, store of value, and unit of account. Store of value refers to the asset that holds purchasing power over a period of time. Therefore, option c is correct.

Explanation for incorrect options:

a.

Medium of exchange function of money defines the ability to purchase goods and services. In other words, with money exchange of goods and services are possible. Therefore, option a is incorrect.

b.

Source of liquidity refers to the cash that is saved in the accounts or the short-term securities that can be easily converted into cash. Therefore, option b is incorrect.

d.

Money as a function of the unit of accounts explains the measure where economic calculations are made possible. Therefore, option d is incorrect.

e.

Money cannot be defined as the source of wealth as it does not include all forms of wealth. Therefore, option e is incorrect.

Economics Concept Introduction

Financial system: Financial system refers to the system that facilitates the borrower to borrow capital and the investors to invest their savings in the financial market.

Liquid asset: An asset can be referred to as a liquid asset if it can be converted into cash easily without any loss in its value.