Which function of money is most directly affected by inflation?

• A. Standard of deferred payment
• B. Unit of account
• C. Medium of exchange
• D. Store of value

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the four main functions of money: medium of exchange, unit of account, store of value, and standard of deferred payment.
2. Step 2: Define each function briefly: Medium of exchange facilitates transactions; unit of account provides a common measure of value; store of value preserves purchasing power over time; standard of deferred payment allows payments to be made in the future.
3. Step 3: Consider how inflation affects the purchasing power of money over time, which directly impacts the ability of money to hold value.
4. Step 4: Recognize that inflation erodes the purchasing power, making money less effective as a store of value because it cannot reliably preserve wealth.
5. Step 5: Conclude that among the functions listed, the store of value is most directly affected by inflation.