Correct Option
The correct option is 1 and 3 only.
Explanation
Money serves three primary functions in an economy: it acts as a medium of exchange, a unit of account, and a store of value. The "store of value" function implies that money allows individuals to transfer purchasing power from the present to the future. For an asset to serve this function effectively, it must be durable and retain its worth over time.
Statement-wise Analysis
- Statement 1 is Correct: Money is a distinct asset that functions as a store of value. Unlike services or perishable goods that must be consumed immediately, money can be held and exchanged for goods and services at a later date. It is considered the most liquid asset.
- Statement 2 is Incorrect: The value of money is highly relevant to its function as a store of value. If the value of money fluctuates wildly or depreciates rapidly (as seen during hyperinflation), it fails to preserve purchasing power. Therefore, stability in the value of money is a prerequisite for it to act as an effective store of value.
- Statement 3 is Correct: Compared to commodities used in barter systems (such as grain, livestock, or perishable food items), money has negligible storage costs. Commodities like rice require physical space and protection from spoilage, whereas money (whether physical currency or digital balances) is compact, durable, and easy to store.
Key Takeaway
Key Takeaway: Money acts as a store of value by allowing the deferral of consumption. However, this function depends on price stability; high inflation erodes money's ability to store value. Additionally, money minimizes the storage costs associated with holding physical wealth.