Money is a medium of exchange that is widely accepted by people for the payment of goods and services, as well as the repayment of loans. It is a social contrivance that people accept because they know that others will. Money has three main functions:

• Medium of exchange: Money allows people and businesses to obtain what they need to live and thrive. It avoids the need to search for someone able and willing to make the desired exchange of items.

• Unit of account: Money is a common measure of value across the economy. It allows people to compare the value of different goods and services.

• Store of value: Money can be saved and used later, smoothing purchases over time.

Money can be anything that can serve as a store of value, unit of account, or medium of exchange. It can be a physical object, such as coins or paper bills, or a digital representation, such as bank deposits or cryptocurrencies. Money may or may not have intrinsic value. Commodity money, such as gold or silver, has intrinsic value because it has other uses besides being a medium of exchange. Fiat money, such as government-issued currency, serves only as a medium of exchange because its use as such is authorized by the government; it has no intrinsic value.

Without money, we would be reduced to a barter economy, where every item someone wanted to purchase would have to be exchanged for something that person could provide. Money is valuable because we want it, but we want it only because it can get us a desired product or service. The total quantity of money in the economy at any one time is called the money supply, and economists measure it because it affects economic activity.