Role of money

Primary functions of money

Banknotes of different currencies with a face value of By , most of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium. This example, of course, is rather ridiculous but what it points out is that anything can be money as long as it is generally acceptable as such. If, for example, most people feel that their savings would become worthless very soon, they would spend them at once and save nothing. After a few weeks the seller of the video recorder might have more than enough wheat. The Song government granted several shops the sole right to issue banknotes, and in the early 12th century the government finally took over these shops to produce state-issued currency. This economic phenomenon was a slow and gradual process that took place from the late Tang dynasty — into the Song dynasty — However, money is more liquid than most other stores of value because as a medium of exchange, it is readily accepted everywhere. It does not provide a method for estimating the relative value of two goods. Barter is a system of trading without the use of money. Preview Unable to display preview. Production, distribution, and consumption are influenced to a great extent by prices, and prices are measured in money. But if there is money, he can sell his cattle, get money for that and can store his wealth in the form of money. Each consumer has a different set of wants.

The recent experience of inflation, a monetary phenomenon, has raised the question whether existing institutions — e. Download preview PDF. In this case, it is almost impossible for him to divide his house and barter it for all the above things.

Money may not even be the best store of value because it depreciates with inflation. For example, it is possible to purchase consumer durables such as T.

In the developing economies a lot of natural and human resources lie un-utilised and underutilized which can be employed for productive purposes.

role of money in modern economy ppt

Even paper money is ideal in this regard. The printing of paper money was also associated with wars, and financing of wars, and therefore regarded as part of maintaining a standing army. Banknotes of different currencies with a face value of Bymost of the industrializing nations were on some form of gold standard, with paper notes and silver coins constituting the circulating medium.

Four functions of money

They also discuss how these variables interact with each other and with the macroeconomic conditions, particularly monetary policy and the expectations about the future trends in the economy. Dollar an internationally accepted money? Thus, when goods are bought on hire-purchase, they are given to the buyer upon payment of a deposit, and he then pays the remaining amount in a number of installments. Knowing the value or price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase. Cognizability: The material used as money should be easily recognizable. However, in a modern economy, this is not so. In most major economies using coinage, copper, silver and gold formed three tiers of coins. The already widespread methods of woodblock printing and then Pi Sheng 's movable type printing by the 11th century was the impetus for the massive production of paper money in premodern China. A medium of exchange, but not a means of payment, would be needed even in an economy where everyone was certain of future events. Precious metals like gold and silver are always acceptable.

A Standard of Postponed Payment: This is an extension of the first function. The newly created money can be spent on investment projects both in the industrial and agricultural fields which would lead to the increase in output, income and employment.

what are the five functions of money

Money to be used as a medium of exchange must be universally acceptable. If money goes on losing its stability of value, it will not be accepted as money.

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Role and Importance of Money