Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Function Of Money Understanding the Function of Money Money is a very important aspect of human life. The function of money is as a medium of exchange and a unit of value. Money can be in physical form, such as paper or metal, or in digital form, such as electronic money stored in a bank account. Below is a further explanation of the function of money. 1. As a medium of exchange The most basic function of money is as a medium of exchange. Money allows someone to buy goods or services from other people without having to bring the goods or services you want to exchange. In an advanced economic system, money can also be used to buy assets such as stocks or property. 2. As a unit of value Money also functions as a unit of value that allows us to know the price of an item or service. In an advanced economic system, the value of money is determined by the market. This means that the value of money is influenced by the amount of money circulating in the market and the demand for that money. 3. As a store of value Aside from being a medium of exchange and a unit of value, money also functions as a store of value. This means that money can be saved and used at a later date. For example, a person can save money in a bank for future use when they need money to buy goods or services. 4. As a means of payment of debt Another function of money is as a means of paying debts. For example, a person can borrow money from a bank or other lender to buy a house or a car. Then, they can pay back the debt with the money they earn from their work or business. 5. As a measure of welfare The function of money is also used as a measure of welfare. The amount of money a person has can be used as an indicator of their affluence. This means that the more money a person has, the higher their level of well-being. The Importance of the Function of Money in the Economy The functions of money that have been described above have an important role in the economy. Without money, a complex economic system like the one that exists today would not be able to work. The following are some of the reasons why the function of money is very important in the economy: 1. Increase exchange efficiency In the barter system, the exchange of goods and services must be carried out directly and mutually beneficial. This requires an agreement that is difficult to reach between the two parties. With money, exchange becomes easier and more efficient. Money allows someone to buy goods or services without having to have the same goods or services with the same value. 2. Allows specialization in production With money, someone can sell the goods or services they produce and use that money to buy the goods or services they need. This allows specialization in production. A farmer, for example, can focus on producing agricultural crops and selling the produce to earn money, while he can use the money to buy food and other goods he needs. 3. Simplify the measurement of economic value In the barter system, it is difficult to determine the relative value of two different goods. Money allows us to measure the relative value of various goods and services. This makes it possible to determine market prices for various goods and services. 4. Allows debt repayment Money allows for easier debt repayments. With money, someone can borrow money from lenders and repay the debt in the future. This allows companies and individuals to grow their business using borrowed capital. 5. Encouraging economic growth The function of money allows for faster economic growth. Money allows companies and individuals to invest their money into productive businesses and projects. These investments can increase production and provide benefits to the economy as a whole. Types of Money There are various types of money in circulation. Here are some types of money that are commonly known: 1. Cash Cash is the money most commonly known and used in everyday life. This includes coins and banknotes issued by central banks and used to make payments. 2. Credit money Credit money is money borrowed from a bank or other financial institution to buy goods or services. This money must then be returned with interest within a certain period of time. 3. Electronic money Electronic money is a form of money that is stored in digital form, such as on a debit or credit card or in a digital wallet application. Electronic money allows one to make electronic payments and transfer funds online. 4. Crypto money Crypto money is a form of digital money that uses encryption technology to carry out transactions and secure it. The most famous example of cryptocurrency is Bitcoin. 5. Coin Coins are a form of money made of metal and are usually used for small denominations, such as coins. 6. Commodity money Commodity money is a form of money whose intrinsic value comes from raw materials or products, such as gold or silver. Commodity money is acceptable as a medium of exchange because of its intrinsic value. 7. Demand deposits Demand deposits are forms of money that are intangible and are kept in the form of notes on savings books, checks and other financial instruments. Demand deposits can be used to make electronic payments and transfer funds online. Conclusion The function of money has an important role in the economy and human life. Without money, the exchange of goods and services would be very difficult. The function of money as a medium of exchange, a unit of value, a store of value, a means of paying off debts, and a means of measuring welfare enables faster and more efficient economic growth. Therefore, it is important for us to understand the important role money plays in the economy and how it can affect our lives as a whole. The function of money is very important in human life and in the economic system. Without money, the exchange of goods and services would be very difficult. Money also functions as a unit of value, a store of value, a means of paying debts, and a measure of wellbeing. Therefore, it is important to understand the importance of money and how it functions in everyday life.