Question
List and explain the three functions of money.
Answer
The three functions of money are medium of exchange, unit of account, and store of value.
1. Medium of exchange
Money is widely accepted in payment for goods and services. It lets a buyer trade money for an item instead of finding a seller who simultaneously wants exactly what the buyer can offer in barter.
2. Unit of account
Money provides a common unit for quoting and comparing prices. If a book costs 40, the shared dollar unit makes their relative values easy to record and compare. This function is also called a measure or standard of value in some materials.
3. Store of value
Money allows purchasing power received today to be held for later use. It can therefore connect earning and spending across time. Money is not a perfect store of value, because inflation can reduce its purchasing power.
Together, the three functions make exchange easier, provide a common language for prices and accounting, and allow value to be carried into the future.
Evidence boundary
This answer uses the standard three-function convention in the cited Federal Reserve education materials. Some textbooks call a unit of account a measure or standard of value, and some list a standard of deferred payment as a separate fourth function. Those alternate classifications are not part of this three-function prompt. A store of value preserves purchasing power imperfectly because inflation can reduce what money buys.
Sources
These references support the concepts and methods used in the explanation above.