Q."Money as a store of value helps to shift purchasing power from present to the future". Explain.
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Start your 14-day free trial to unlock the full solution →Because money can be held without decaying or losing its acceptability, it lets a person "store" today's purchasing power and use it later — this is what it means to say money shifts purchasing power from the present to the future.
Money performs several functions, one of which is to act as a store of value. Before money existed, in a barter economy, a person who wanted to save the fruits of today's labour for future use faced a real problem: most goods (grain, vegetables, livestock) are perishable, costly to store, or difficult to exchange later for whatever is actually needed at that future time.
Money solves this problem because it:
- does not physically perish the way most goods do, so it can be held over time without loss,
- is universally acceptable in exchange, so it can later be converted into whatever good or service is actually wanted when the need arises, and
- is easily stored (in a wallet, bank account, etc.) without the storage costs or spoilage risk that holding physical goods would involve.
Because of these properties, a person can sell goods or supply labour today, receive money in return, hold that money for some time, and then spend it to buy goods and services at a future date — effectively carrying their purchasing power forward in time.
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