Keeping money in a savings account as a safety measure against possible future income declines or job loss represents money functioning as a:
Group of answer choices
A standard of value.
B medium of exchange.
C unit of account.
D store of value.
The correct answer and explanation is:
Correct Answer: D) Store of value
Keeping money in a savings account as a safeguard against future income decline or job loss is an example of money functioning as a store of value. This concept refers to the ability of money to retain its purchasing power over time. By placing funds in a savings account, individuals are preserving their wealth for future use. They expect that the money saved today will have similar value in the future and can be used to meet future needs.
Money has several functions in an economy, and understanding these functions helps clarify why people save money or use it in specific ways. The store of value function is especially important for managing financial risk. When people are uncertain about their future income, such as during periods of economic instability or potential job loss, they often respond by saving more. This behavior allows them to ensure that they will have resources available even if their income is reduced or disappears temporarily.
This function differs from other roles that money plays. For example, a medium of exchange refers to money being used to buy goods and services. A unit of account means money provides a standard measure for pricing goods and services. A standard of value is closely related to the unit of account, indicating that money can be used to compare the worth of different items. While these functions relate to active use of money in transactions or pricing, the store of value function is about preservation and security.
In conclusion, the action of saving money for emergencies or future financial uncertainty clearly demonstrates money’s role as a store of value. This function ensures that individuals can rely on their saved funds to meet future expenses even if their income changes.