Reference no: EM133643996

Question

Dollars fulfill three important economic functions: they serve as a unit of account, a medium of exchange, and a store of value. When economists say a dollar is "a unit of account" they mean that the dollar serves as a standard measure of value in the economy much like a mile is a standard measure of distance. To be a "medium of exchange" means that people don't have to worry about finding people to directly barter with to exchange goods. Because everyone sees dollars as valuable, we are all willing to accept them in exchange for whatever goods or services they have to offer. Finally, dollars serve as a store of value because they allow us to store our wealth over time. If you get five dollars in change after buying lunch, you can use that money later on to buy dinner. Your purchasing power is preserved across time.

Anything that fulfills these three functions can be thought of as money. Across history there are many examples of different commodities serving as money. Gold, silver, and other precious metals often come to mind. Roman soldiers were paid in salt (this is where we get the word salary in fact). ?But one of the strangest examples of money comes from the island of Yap. Listen to this short NPR story and then respond to the following:

1. Why were these stones valuable to the islanders?

2. Are giant stones as money any more strange than relying on gold?