Q .No 2
Define Money and Explain different Functions of Money .
OR
Money is what does . Discuss this statement .
OR
Explain the importance or role of money in modern Economy.
OR
What are the Qualities of good money Material . Also discuss the importance of Money.
OR
Money is quite indispensable for the function of market economy. Discuss .
OR
Elaborate the social significance of Money .
Money
Introduction :
Money has always been important to people and the economy . Different things have been used as money at different times . Before industrial revolution , money mainly consisted of gold and silver coins . Now a days , notes issued by the government of a country and the bank notes and credit cards are widely used to pay for goods and services and for settlement of debts . so money has changed into various forms with the passage of time . The following table shows the different stages of money growth.
Ø Barter system
Ø Commodity Money
Ø Metallic Money
Ø Paper Money
Electronic funds transfer
Definitions :
“Anything , which is widely accepted in payment of goods or in discharge of other kinds of business obligations “
Robertson
“money is any thing which is commonly used and generally accepted as a medium of exchange or as a standard of value.
R. P. Kent
“Anything which is generally accepted as a mean of exchange and at the same time acts as a measure and as a store of value”
Geoffrey crowther
“Purchasing power , something which buys things”
G.D.H Cole
“Money is what money does”
Prof : Hanson
Functions of Money
A- Primary Functions
B- Secondary Functions
C-Contingent Functions
D- Miscellaneous Functions
A- Primary Functions
Primary functions are those , which are performed by money on account of its major characteristic
These are as follows :
1. Medium of exchange :
Money served as medium of exchange . it is used to make payments for goods and services . goods can be bought and sold in term of money without any difficulty.
2. Measure of value :
Another basic function of money is that it serves as common measure of value . it is a common denominator by which we can measure and compare the value of different goods services. Money in other words , act as a yardstick of values and commodities.
3. Store of value :
It is an important function of money. Under barter system goods animals and commodities could not be stored for a longer period . Now wealth is stored in the form of money.
4. Standard of deferred payments :
Money is a standard of deferred payments . it is used to express debt and business obligations . Goods are normally bought and sold on credit and it is expressed in the term of money.
B- Secondary Functions
5. Transfer of Value :
With the help of money , the value and wealth can be transferred from one person to another person, from one place to another , from one time to another .
6. Market Mechanism :
Money is the base of market mechanism. In other words market mechanism and the forces demand and supply works only because of money .
7. Income and consumption :
All economic variable including income and consumption are determined and quoted in terms money . Money helps in determination, valuation and budgeting of expenses and revenues.
8. Instrument of modern economy :
Money is the basic and most important instrument of modern economy . All the economic policy are applicable only because of the fact that it is possible to state the price of everything in term money.
9. Monetary and fiscal Management :
Money is an important element of and fiscal policies of govt. it plays it role in all kinds of economic actions taken by govt .
10. Aids to Economic Activities :
All kinds of economic activities such as investment , savings , credit ,purchases , and sales are made in term of money . it has facilitated the process of expansion of trade and commerce.
11. Liquidity of international trade :
Money has provided the much needed liquidity , to international trade . Under barter it was not possible to trade effectively with foreign countries .money however removes these difficulties.
C-Contingent Functions
12. Basis of Economic theories :
Money is the basis for almost all economic theories. The consumption theory , production theory , utility theory ,etc are all possible applicable because of the function of money.
13. distribution of national Income :
Money facilitates the distribution of national income among the various factors of production . it also helps in bringing justice in distribution national income.
14. Measurement of Efficiency :
We can measure output, cost and efficiency in definite monetary units and can take long term decisions on the basis of such measurements.
15. Basis of credit :
Bank creates credit on the basis of their cash reserves . Any change in the value of money is brought about mainly by an increase or decrease in money supply.
16. Measures of Marginal Productivity :
The marginal productivity of each factor of production is measured with help of money . Money also helps in equalization of marginal utility in expenditures .
D- Miscellaneous Functions
17. Liquidity of Property :
Money gives a liquid form of wealth . A property can be converted into liquid form with the use of money.
18. Determination of Solvency :
Money is used to determine the solvency of any firm or company etc. to analyze that whether a business is able to pay off its debts . Money value of all of its assets is taken into consideration .
19. Various options:
The holder of money has many options for using it
Ø He can deposit his money into the bank.
Ø He can buy durable goods.
Ø He can buy consumption goods and many more.
So,
This general acceptability of money has given him the option to compare the various alternatives and select the best alternatives so that he may get highest benefit.
Conclusion:
Money performs a large number of functions and it has made our life easier and speedy , it performs four main functions which can be remember by the following
“Money is a matter of four functions , a medium , a measure ,a standard ,a store “
In other words it can be also said that :
O! Money !! you are not my god but by god you fulfill all my desires.
