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Economic Theory

The types of money:
1) commodity money is money that is based on a commodity with
some intrinsic value;
2) representative money is paper currency that can be exchanged for a

fixed amount of a valuable commodity, usually gold or silver;
3) fiat money is established as money by the government but has no

intrinsic value. The best example of fiat money is paper currency;
4) electronic money.
The earliest forms of money were commodities that often had other
uses besides serving as money. Hides, furs, jewellery, precious stones and

metals, and livestock, cigarettes are but a few examples. Even today these
items often serve as money in economically underdeveloped regions of the
world. Historically, the precious metals, gold and silver have been the

most continuously used forms of commodity money.

2. Functions of Money

Economists generally agree that money has four basic functions:
1) medium of exchange:
one of the primary functions is to serve as a medium of exchange. For

something to be a medium of exchange people must be willing to accept a
sufficient quantity of it in payment for goods and services. Having a
medium of exchange frees a society from faster. In a barter economy, for
example, goods are traded for goods. But in order to have a trade it is

necessary to have a coincidence of wants. Workers for coal companies
would have to be paid in coal they produced. And they would have trouble

exchanging it for a TV set because TV store owners may not wish it.
Money is something that is generally acceptable to everyone as payment
for anything.
The existence of money eliminates the need for a coincidence of

wants. Therefore, when goods are bought and sold using money as the
medium of exchange, the economy is able to be more productive. Money
makes the exchange of goods and services easier and reduces the cost, at

least in time and effort, of carrying out a transaction.
However, if money is used to carry on trade, a coal worker can sell
coal to whoever wants it and accept money in exchange and then he can
buy what he wished with it as;

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