What are the different functions of money. What is money .and it's explain the function of money? 2022-10-24
What are the different functions of money Rating:
Money is a medium of exchange that is widely accepted in transactions for goods and services. It plays a vital role in the economy and serves several functions, which include serving as a unit of account, a store of value, and a standard of deferred payment.
First and foremost, money serves as a unit of account, which means it is used to measure the value of goods and services. Prices of goods and services are typically expressed in a certain currency, such as dollars or euros, and this allows people to compare the relative values of different items. For example, if a person wants to buy a car, they can compare the price of different models in dollars to determine which one is the best value for their money.
Secondly, money serves as a store of value, which means it can be saved and used to purchase goods and services at a later date. This is important because it allows people to save and plan for the future. For example, if someone earns money by working, they can save some of it to use for future expenses, such as paying for their children's education or buying a house. Money can also be invested in assets, such as stocks or real estate, which can potentially increase in value over time and provide a return on investment.
Finally, money serves as a standard of deferred payment, which means it can be used to settle debts and make payments over time. For example, if someone takes out a loan to buy a house, they can use money to make payments on the loan over time until it is fully paid off. Money can also be used to make payments for goods and services that are not immediately available, such as when someone orders a product online and pays for it upfront, but does not receive the product until it is shipped at a later date.
In conclusion, money serves several important functions in the economy, including serving as a unit of account, a store of value, and a standard of deferred payment. These functions allow people to exchange goods and services, save for the future, and make payments over time, which are all essential for the smooth functioning of an economy.
What are the different functions of money in an economy?
While functioning as a medium of exchange, money benefits the society in a number of ways: a It overcomes the inconvenience of baiter system i. So money enables both current buying and selling with immediate cash payments and current and present transactions to be discharged in future. Possession of money enables one to get hold of almost any commodity in any place and money never locks a buyer. Money is the basis of the money market and capital market. The coins were fashioned from electrum, a natural mixture of gold and silver. Cryptocurrencies are not recognized as legal tender in the U.
In periods of rapid inflation, people may not want to rely on money as a store of value, and they may turn to commodities such as land or gold instead. It is this peculiarity which distinguishes money from all other commodities. Given such obligations, there was a tendency to use lower-quality horses to pay back debts; higher-quality horses were kept out of circulation for other uses. Similarly, a producer measures the utilities of different factors of production with the help of money. Exchange Another thing that can elaborate on the importance of money in better ways is the exchange of values through money.
Money makes it easy to store wealth in the most convenient, secure, and economical way to meet contingencies and unpredictable emergencies. If cigarettes and mackerel can be used as money, then just what is money? As a medium of exchange, money facilitates cash transaction of goods and services. Money is also called a bearer of options or generalised purchasing power because it provides freedom of choice to buy things he wants most from those who offer best bargain. In 1980, the Fed decided that changes in the ways people were managing their money made M1 useless for policy choices. So invention of money is not an unmixed blessing.
Representative money is a certificate or token that can be exchanged for the underlying commodity. Secondary Functions: A Standard of Deferred Payments:We knew that money serves as a medium of exchange. That means when you go to the grocery store; you pay for your food using cash or a credit card. A bank that needs money requests it from the Federal Reserve Bank, which deposits the money into the bank's account, with interest. The total value of the M1 money supply in the United States as of May 2022. In order to maintain its value, money must have a limited supply. During World War II, cigarettes became a de facto currency for soldiers in prisoner-of-war camps.
If money were not available, people would need to barter with each other, meaning that each person would need to identify others with whom they have a double coincidence of wants—that is, each party has a specific good or service that the other desires. Money is said to be the master key for the solution of all economic difficulties. The development of the economy requires the establishment of schools, hospitals, bridges, roads, dams, energy resources, communication, etc which is only possible through money. Money acts as a medium of exchange or as a medium of payments. You can sign up for early access to Calendar here! The use of money as the standard of deterred or delayed payments immensely simplifies borrowing and lending operations because money generally maintains a constant value through time. Even broader measures of the money supply include large time-deposits, money market mutual funds held by institutions, and other assets that are somewhat less liquid than those in M2.
What is money .and it's explain the function of money?
Its role as a medium of exchange makes it a convenient store of value. And, it can also help you create a budget to ensure that you have these necessities met. Money by itself has no utility except perhaps to the miser. Even forms of money that share these function may be more or less useful based on the characteristics of money. By spending it, we can get any commodity in future. A producer maximises his returns by substituting one factor in the place of another for productivity gain.
B Measurement and Maximisation of Utility:Utility is measured in terms of money. Economies without money typically engage in the barter system. Second, money must serve as a store of value. It is, in fact, very difficult to calculate the factor income without money. The Shell Money of the Slave Trade. Industries The industrial progress is linked with money, which is the lifeblood of a business. This helps in making the exchange a mutually profitable activity.
But something need not have intrinsic value to serve as money. Each country may assign a slightly different definition of money, but generally, it's defined as the legal tender medium of exchange that circulates within a country's borders. Finance is about money. Money as a Medium of Exchange The most important function of money is to serve as a medium of exchange. Money is an asset or form of wealth, and6. As a medium of exchange, money solves all the difficulties of barter.
By acting as a store of value, money provides security to the individuals to meet unpredictable emergencies and to pay debts that are fixed in terms of money. Without a pricing process organised marketing and production is not possible. Gold and silver can be used as jewelry and for some industrial and medicinal purposes, so they have value apart from their use as money. Gold, for example, has been used throughout the ages as money although today it is not used as money but rather is valued for its other attributes. Because I know others will accept it, I am comfortable accepting it. Keynes recognised and laid stress on store of value function of money.