Rising prices erode the value of money as a ________ and a ________. a. unit of barter; unit of account b. store of value; unit of liquidity c. medium of exchange; store of value d. store of value; unit of barter
Question
Rising prices erode the value of money as a ________ and a ________.
a. unit of barter; unit of account
b. store of value; unit of liquidity
c. medium of exchange; store of value
d. store of value; unit of barter
Solution
The correct answer is:
c. medium of exchange; store of value
Rising prices, or inflation, erode the value of money in two ways. First, as a medium of exchange, money is used to buy goods and services. When prices rise, the same amount of money buys less than it did before, reducing its usefulness as a medium of exchange. Second, as a store of value, money is used to hold wealth. When prices rise, the purchasing power of money held for future use declines, reducing its effectiveness as a store of value.
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