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What are the Important Functions of Money? In a static sense, as a passive technical device, money serves i as a medium of exchange; ii as a measure of value or unit of account; iii as a standard of deferred payments; and iv as a store of value. The fundamental role of money in an economic system is to serve as a medium of exchange or as a means of payment.
On account of its general acceptability, as a medium of payment, money has ready purchasing power and becomes a circulating medium. Being a generally acceptable medium of exchange, money facilitates the multiple exchanges of goods and services with minimum effort and time.
In fact, the essential function of money is to obviate the difficulties of the barter system by serving as a medium of exchange. In doing so, it breaks up barter into sales and purchases.
Commodities, instead of being exchanged directly for other commodities, are exchanged for money, which is again exchanged for other goods.
Thus, money, as a medium of exchange, permits an exchange of goods and services that need not be simultaneous. This is, perhaps, the most significant property of money in a modern complex economy. Being a generally acceptable medium of exchange, money obviates the main difficulty of the barter system the need for a double coincidence of wants, and quickens the process of exchange transactions.
Though its physical substance does not have much relevance to the ability to perform its task as a medium of exchange, nevertheless, in order that it becomes a good circulating medium, money should possess certain attributes such as uniformity, cognisability, durability, portability, divisibility and general acceptability.
Uniformity or homogeneity and its cognisable characteristics facilitate money's universal acceptability as a means of payment; its durability confers on money its role of purchasing power; its portability is desired for the convenience of making transactions; its divisibility facilitates the smooth operation of small and big transactions and its general acceptability generates public confidence in money.
Money conventionally as well as technically acts as a unit of account or numeraire. In a monetised economy, where money is the medium of exchange, money can be treated as a common measure or common denominator of value.
The value in exchange of all goods and services can be expressed in terms of money. Such an expression gives rise to the price system. Money, in fact, acts as a means of calculating the relative prices of goods and services. In this sense, it has been regarded as a unit of account.
|Report Abuse||Prev NEXT The concept of a single worldwide currency has been suggested since the 16th century, and came close to being instituted after World War II -- yet the idea remains little more than that.|
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For instance, the rupee is the unit of account in India; the dollar is the unit of account in the U. The use of money as a unit of account in a monetised economy is a great technological improvement over the barter system.
It is enough for people to know the relative prices of different goods and there is no need for them to remember multiple cross-relationships of the exchange values of these goods. Again, in a monetised market, the real cost measured in terms of time and efforts of exchanging goods is low, since a minimum amount of information is required to conclude a transaction.
This has far-reaching effects on the development of trade and economy. Money is, thus, regarded as man's most useful and revolutionary invention. It has provided a language of economic communication, and since it is a common measure of value, money makes possible a smooth operation of the price system or market mechanism in a modern economic society.
It automatically provides the basis for keeping accounts, calculating profit and loss, and costing. Money being a uniform and easily comprehensive unit of account, the aggregate real output of the economy of a nation can be measured as national income in monetary terms.
There is a marked distinction between money as a medium of exchange and money as a unit of account.
As a medium of exchange, money functions as something real a coin, a currency note, a credit entry in a bank account, but as a unit of account, money functions as an abstract measure of value the rupee, the dollar, the yen etc.Can the “$” symbol be safely considered as universal when making a graphic depicting money?
Depicting money as green bills or gold coins would be OK, even if we don't use green bills or gold coins. How can I stress to my brother the importance of saving when he relies on me as a safety net? Jun 02, · Best Answer: The function of money is to serve as a "liquid" unit of wealth.
That is, it is freely convertible into any goods, services, or other forms of wealth. That is, it is freely convertible into any goods, services, or other forms of attheheels.com: Resolved. Programs were not universal to start with and were originally conceived as a means of maintaining incomes and buying political allegiance of the workers.
they could finance much of the health insurance costs from the money wasted by commercial insurance policies who had to have an army of insurance agents to market and collect on these.
Bank money, or broad money (M1/M2) is the money created by private banks through the recording of loans as deposits of borrowing clients, with partial support indicated by the cash ratio.
Currently, bank money is created as electronic money. Jul 07, · Why Single-Payer Health Care Saves Money Image The total cost of providing health coverage under the single-payer approach is actually substantially lower than .
Importance of money in our life Money is not everything in life but it is true that money can buy lots of things.
The function of money as an asset is the direct result of one of the most important properties of money, namely, its liquidity. People tend to keep money balances as a representative part of their real income (the value stored) in anticipation of future monetary transactions. Why is universal acceptability such an important characteristic of money? What other characteristics can you think of that might be important to market participants? What do you think might happen if we go away from money to a. Can the “$” symbol be safely considered as universal when making a graphic depicting money? Depicting money as green bills or gold coins would be OK, even if we don't use green bills or gold coins. How can I stress to my brother the importance of saving when he relies on me as a safety net?
It goes without saying that all services and products are quantified in terms of green bucks.