Eric is heading out to lunch. He goes to the bank and withdraws $30 from his sav
ID: 1115608 • Letter: E
Question
Eric is heading out to lunch. He goes to the bank and withdraws $30 from his savings account. He heads to a local deli that sells half sub sandwiches for $4.99 and whole subs for $7.99. Eric decides that he's pretty hungry and goes for the whole. He pays with a $10 bill and tells the cashier to keep the change.
Identify what role money plays in each of the following parts of the story.
Hint: Select each role only once.
Role of Money
Medium of Exchange
Unit of Account
Store of Value
Role of Money
Medium of Exchange
Unit of Account
Store of Value
Eric can easily determine that the whole sandwich, while twice as long as the half, is priced at less than twice as much. Eric accumulates money in his savings account for future purchases. Eric buys his lunch with a $10 bill.Explanation / Answer
1) Unit of Account
2) Store of Value
3) Medium of Exchange
Money is anything which is generally acceptable as a medium of exchange. Functions of money includes:
a) Medium of Exchange: It means that money acts as a medium for the sale and purchase of goods and services. In the absence of money, goods were exchanged for goods. This required double coincidence of wants. Accordingly, an exchange was difficult, and therefore limited. The introduction of money has separated the acts of sale and purchase: a double coincidence of wants is no longer required. The exchange is now much simpler and is, therefore, unlimited. This has raised the overall level of economic activity in an economy.
b) Measure of Value or Unit of Value: Money serves as a measure of value in terms of unit of account. Unit of account means that the value of each good or service is measured in the monetary unit. Measurement of value was very difficult in the barter system: one good was valued in terms of the other. There was no common unit of value. An introduction of money has removed this difficulty. Now, each good is valued in terms of money.
c) Store of Value: Money also serves as store of value. Money is stored by people for future use.
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