Final answer:
Money is a medium of exchange, a unit of account, and a store of value. An example transaction is buying a book with currency, which shows money facilitating trade, measuring the book's value, and retaining value for future use.
Step-by-step explanation:
The subject of this question involves understanding the functions of money within an economic system. Money is often described as having three primary functions: it serves as a medium of exchange, a unit of account, and a store of value.
To illustrate each function, we could consider an economic transaction like purchasing a book from a bookstore using currency, which is a form of money.
- The function as a medium of exchange is depicted when the buyer uses money to purchase the book, facilitating the transaction without the need for barter.
- As a unit of account, money provides a uniform measure of the book's value, making it easy to compare its price to other books or items.
- Finally, money acts as a store of value since the bookstore can hold onto the money received and use it in the future to restock or invest in other goods or services.
This example illustrates the essential roles money plays in facilitating transactions and maintaining economic stability.