Question

Explain with ONE example and in terms of the three functions of money that a commodity serves as medium of exchange may NOT be necessarily serve as unit of account or store of value.

Answer 1

A commodity, such as cattle, may be used as a medium of exchange in certain societies, but its variability and perishability prevent it from being an effective unit of account or a reliable store of value.

Step-by-step explanation:

The question pertains to the different functions of money: as a medium of exchange, a unit of account, and a store of value. A commodity may serve as a medium of exchange without necessarily being a good unit of account or store of value.

Take, for example, cattle in some traditional societies. Cattle have been used as a medium of exchange for goods and services. However, as a unit of account, cattle are not ideal because they come in varying sizes, health statuses, and ages, making it complex to determine a consistent value across all cattle. Additionally, as a store of value, cattle are not the best either, as they can die or lose value due to disease or age, and they incur maintenance costs, unlike more durable forms of money.