In national income accounting, metres of cloth, tonnes of rice and numbers of machines are added up after expressing them in money. This uses which function of money?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Unit of account
Cloth, rice and machines can be added only after each is expressed in money. Using money to express the value of all goods is its function as a unit of account.
Option (1) Store of value — Incorrect. Store of value means keeping wealth in money for later use.
Option (2) Medium of exchange — Incorrect. Medium of exchange means money is used to buy and sell, in place of barter.
Option (3) Unit of account — Correct. The value of all goods can be expressed in monetary units, so they can be added.
Option (4) Legal tender — Incorrect. Legal tender is money that must be accepted in payment by law; it is not a function of money.
This question uses National Income Accounting and Money and Banking together.
NCERT (2026-27): “2.1 Some Basic Concepts of Macroeconomics … However, in order to get a quantitative assessment – a measure of the total final goods and services produced in the economy – it is obvious that we need a common measuring rod. We cannot add metres of cloth produced to tonnes of rice or number of automobiles or machines. Our common measuring rod is money. …” “Chapter 3: Money and Banking – 3.1 Functions of Money: … Money also acts as a convenient unit of account. The value of all goods and services can be expressed in monetary units. …” |