In AP Macroeconomics, money has three functions. 1. Money is a Medium of exchange. 2. Money measures prices. 3. Money is a store of value.
When economists say that money is a medium of exchange, they mean that it's accepted. A store of value means that money keeps its value. Money must measure prices meaning that a piece of bubble gum that costs 10 cents would mean the same thing to everyone and provide information about the relative cost of a Pepsi that might cost 20 cents.
The following items could be money, but violate one of the definitions above. Can you explain why?
1. A sea shell 2. Gold 3. A pizza 4. A dog
Numbers 1, 2 and 4 don't measure prices. Number 3 is not a store of value.
The currency in the United States is fiat money. The term "fiat" means that the currency has a value simply because the government says it does. People accept it so it functions as a medium of exchange.