Money is a medium of exchange that is widely accepted in transactions for goods and services.
Think of it as the universal translator in the economy – it lets you trade a loaf of bread for a pair of shoes without needing a direct swap of goods.
In the UK, the main forms are banknotes, coins, and electronic balances.
Analogy: Money is like a bridge – it connects buyers and sellers, allowing the flow of goods and services across the economy.
| Characteristic | Explanation |
|---|---|
| Durability | Can survive repeated use (coins last longer than paper). |
| Portability | Easy to carry (a £20 note fits in a wallet). |
| Divisibility | Can be divided into smaller units (pennies, 5p, 10p). |
| Uniformity | All units are identical in value (every £5 note is the same). |
| Acceptability | Widely accepted by everyone (no one says “I don’t want your £20”). |
Math note: The total money supply (M) can be expressed as: \$M = C + D\$ where C = currency in circulation and D = demand deposits.
1. Understand the core definition. Be ready to explain why money is essential.
2. Use clear examples. Mention everyday items (e.g., buying a sandwich) to illustrate functions.
3. Show the link between characteristics and functions. For instance, divisibility supports the unit of account function.
4. Remember the money supply formula. Write it as \$M = C + D\$ and explain each component.
5. Practice diagram drawing. A simple diagram of the money supply components helps visualise the concept.
6. Use bullet points. They make your answer tidy and easy for the examiner to read.
7. Check your spelling and grammar. Clear writing can earn extra marks.
Pro tip: When answering multiple‑choice questions, eliminate obviously wrong options first – it boosts your odds of picking the correct one.