Question

Maria wants to purchase a new computer and go to the Caribbean for spring break. The computer is priced at $1,299, and the vacation is priced at $800. She has only $1,574 in her checking account, so she cannot afford to purchase both. After much thought, Maria buys the computer and writes a check for $1,299. 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 Maria can easily determine that the price of the computer is more than the price of the vacation. Maria has $1,574 in her checking account. Maria writes a check for $1,299.

Answer 1

Explanation:

Maria wants to purchase a computer, and she also wants to go on a vacation trip to Caribbean. She has a total of $1574 in her account. She cannot do both the things together, as the cost of doing both exceeds the amount which she has in her account.

So the role which money plays for each scenario is described below:

Maria can easily determine that the price of the computer is more than the price of the vacation  = Unit of Account

Maria has $1,574 in her checking account   =   Store of value  

Maria writes a check for $1,299   =   Medium of Exchange

Answer 2

Answer:

Maria is writing a cheque of $1299 to purchase computer of $1200.

Here, the role which money plays is Medium of Exchange.

Further Explanation:

Money is anything which is commonly accepted in exchange of goods and services.

Money replaced the Barter system of exchange. Under Barter system, goods are exchanged for goods. This system is challenging as it requires huge effort and time of people to find someone who wants to purchase same thing which other has to offer.

Thus, money refined the system of exchange of goods and services in the economy.

The 4 key functions of money are:-

• Medium of Exchange: Money is use to purchase goods and services.

People can keep money in hand or they can keep it in their savings or current account. To purchase something using money kept in savings or current account, buyer write cheque in the name of seller and bank is obliged to pay the seller by deducting amount from buyer's bank account.

• Store of money: Money can be stored for the future.

Future is uncertain and money is the most liquid asset. Therefore, people store money for any future unforeseen future expanse and for future expanses like for higher education or for buying house etc.

People can store money at their homes or banks. In banks, they deposit money in fixed account which gives them interest.

• Standard of deferred payments: Money can be use to settle future payments.

This function allows people to purchase any good or service in present period and pay in the future period. Thus, money is used for settlement of payments

• Unit of Account: Money provides a common exchange value.

Every good and service can be expressed in money terms. Thus, money provides a common denominator for every good and service.  

Learn More:

Medium of exchange.

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Key words:

Money, Medium of exchange, Store of value, Unit of account, Standard of deferred payment