A survey conducted by American Express in 2015, found that 23% of American adults "hide bills in a secret location at home." a. When people keep their currency for the purpose of saving it, money performs the following function: Money held within your home is easy to spend, so it functions as a medium of exchange. People are holding money for future use, so the money is functioning as a store of value. Since the hidden money is not reflected on tax returns, the money will function as a separate unit of account. A person's money is easier to count this way, so the money is a unit of account. b. Which of the following should be a concern to individuals who keep large amounts of currency hidden in their home:

Solution and Explanation:

(a) People are keeping their currency notes hidden as a source of saving.

This saving can be used in future for any purpose. So, they are storing the purchasing power for future. When the money is stored as the purchasing power for the future, it serves as store of value. So, People are holding money for future use, so the money is functioning as a store of value.

Hence, the correct answer is the option (3).

(b) When a person keeps his money as currency at home and do not invest it in interest bearing instruments then in real terms the value of currency declines.

So, The money will lose its real value due to inflation as no interest is earned as hidden money.

Hence, the correct answer is the option (2).

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