The correct option is 2 only
Explanation
Money serves three primary functions: as a medium of exchange, a unit of account, and a store of value. The 'Unit of Account' function refers to the role of money as a common standard for measuring the value of goods and services, thereby facilitating trade and economic calculation.
Statement-wise Analysis:
- Statement 1 is Incorrect: As a unit of account, money provides a common denominator in which the value of all goods and services is expressed. Just as distance is measured in kilometers or weight in kilograms, economic value is measured in monetary units (e.g., Rupees, Dollars). This standardization allows for the recording of accounts and the pricing of commodities.
- Statement 2 is Correct: The value of money is inversely related to the price level. If there is a general increase in the price level (inflation), the purchasing power of money declines. This means that a unit of money can purchase fewer commodities than before. Therefore, when the price level rises, the value of money in terms of commodities decreases, rather than increases.
- Statement 3 is Incorrect: The unit of account function actually facilitates the calculation of relative prices. By expressing the value of different commodities in a single unit (money), it becomes possible to compare them directly. For example, if a pen costs ₹10 and a notebook costs ₹50, the relative price is easily calculated (one notebook is worth five pens). Without a common unit of account, comparing the relative values of diverse goods would be difficult and inefficient (as seen in the barter system).
Key Takeaway:
The 'Unit of Account' function of money acts as a standard measure of value, enabling the pricing of goods, the recording of debts, and the comparison of relative costs across the economy.