Distinguish between the primary and secondary functions of the money.

Money has two functions - primary and secondary.

The primary functions of the money are the basic functions of money or the original functions of money.

a. The medium of exchange: The primary function of money is to facilitate the transaction of money between the buyer and the second. The problem of wastage of time and resources is avoided. It helps to increase the allocation efficiency in the production of goods and services

b. Unit of account: Money is called the unit of value or it has a common measure against which all the goods and services can be measured. It acts as a denominator common to all commodities. It is used to measure the value of the commodity. The prices of all the goods and services are fixed in terms of money and the problem of expressing the value of each good is avoided. It is important as it facilitates the possibility of keeping business accounts.

The secondary function of the money are the ones that are derived from primary functions.

a. Store of value: Money is an asset that retains its value over some time. People prefer to hold their wealth in the form of money because it has general acceptability. It promotes capital formation through new investments.

b. Standard of deferred payment: Money helps to overcome the problem of deferred payment. The term deferred payment means future payment. Since the value of money is retained over a duration of time assuming the prices are constant, the payments can be done easily even at a future date.