The Functions of Money (AS/A LEVELS/IB/IAL)

The Functions of Money (AS/A LEVELS/IB/IAL)

Courses Info

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes 

The functions of money

There are three key functions of money:

Medium of Exchange

Money is used around the world to buy and sell products. This is the main function and helps to facilitate transactions

Measure of Value

It provides a uniform value for products and services  allowing them to be compared.

Store of Value

Money can be stored in banks to gain interest. Money is also very liquid and can easily be used to purchase goods and services.

AQA Spec – Additional Content

Narrow Money and Broad Money

Money Supply – the stock of liquid assets and currency in the economy. It comprises of cash and other money held in the savings account

Narrow Money

This refers to the physical currency and more liquid assets (coins & bank notes) in the central bank

Broad Money

This refers to the entire money supply and includes liquid, as well as less liquid assets

CIE Spec – Additional Content

Keywords and Definitions


The exchange of goods and services for other goods and services, instead of using money as a medium of exchange

Cash and Bank Deposits

A cash deposit is usually conducted via a money transfer and involves the injection of money into a money market or savings account. When the transaction is complete, the money can be withdrawn

A bank deposit is money being stored in a bank to ensure it is kept safe. The person making the deposit is owed a liability from the bank


The person must pay the bank the amount stated on the cheque


Refers to the availability of assets such as cash


Quick Fire Quiz – Knowledge Check

1. Identify and explain three key functions of money (6 marks)

2. Define ‘Money Supply’ (2 marks)

3. Distinguish between Narrow Money and Broad Money (4 marks)


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