The Functions of Money

Medium Of Exchange:

Usable for buying goods and services
Readily acceptable as a form of payment
Helps society not have to deal with the complications of bartering
Ex. I do not have to trade a laptop for an iPod; I can simply use money as a medium of exchange

Unite Of Account:

prices are stated in terms of the monetary unit
money acts as a yardstick for measuring the relative worth of a variety of goods, services, and resources
allows for defining debt, determining owed taxes, and calculating GDP
aids rational decision making by enabling buyers and sellers to easily compare the prices of various goods, services, and resources.
prices are used to determine relative value of goods and services

Store Of Valve:

allows the transfer of purchasing power from present to future
to buy things later is to store some of their wealth as money
money is the preferred store of value for short periods because it is the most "liquid" (i.e. spendable of all assets).
when inflation is non-existent or mild, holding money is a relatively risk free way to store wealth
is a poor store of value during inflation (given amt of money buys lesser goods as prices rise)
is a good store of value during deflation (given amt of money can buy more as prices fall)
e.g. you can liquidate your assets (in this case money) extremely quickly in the purchase of a new m3 player because it is a quick exchange or trade. A house, however, is not liquid because there is so much involved in "liquidating" it; that is, time and legal paperwork.

Anything that meets these requirements can be considered money.

Therefore, "money is what money does."

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