Functions of Money — Prelims Strategy

Prelims Strategy

For Prelims, a precise understanding of each of the four classical functions – Medium of Exchange, Unit of Account, Store of Value, and Standard of Deferred Payment – is paramount. Start by clearly defining each function and identifying its unique characteristics.

Focus on real-world Indian examples for each, such as UPI for medium of exchange, GST for unit of account, FDs for store of value, and EMIs for standard of deferred payment. Pay close attention to the problems of the barter system and how money resolves them.

Vyyuha's trend analysis shows that questions often involve identifying the correct function from a given scenario or distinguishing between the functions. Memorize the 'MUST' mnemonic (Medium, Unit, Store, Transfer/Standard) for quick recall.

Crucially, connect these functions to current affairs: how digital payments (UPI, CBDC) enhance the medium of exchange, and how inflation impacts the store of value . Be prepared for questions that combine these functions with concepts like money supply measures or the role of the RBI .

Practice MCQs that test conceptual clarity and application, including those with tricky options that might confuse one function with another or with a consequence of money rather than a function itself.