Functions of money

2. Functions of money
By: Zara Ahsan
Superior group of colleges
Lahore Pakistan.

3. What is money
Money is anything that is generally
acceptable in payments for goods and
services or in the payments of debits.
it is also defined as anything that is
regularly used in economic transections or
exchange.

4. Functions of money
The functions of money can be conveniently
divided into three parts:
O A primary functions
O B secondary functions
O C contingent functions
These functions are now discussed in brief.

5. Primary functions
O 1. Money as medium of exchange:
O In all market transections money is used
to pay for goods and services.
O The sale or purchase of goods is done
through money.
O Money in other words, act as a medium of
exchange and helps in overcoming the
difficulty of double coincidence of wants of
the barter economy.

6. O A person now can cell his goods to
another person for money and then he
can spend that money to purchases the
goods he want from other.
O Money has made to exchange of goods
easily. The time spend to exchange of
good with the use of money has been
considerably reduced (lowering
transection cost.)

7. 2.Money as an unit of account
O Another important role of money is that it
serves as a common measure of value.
The value of goods and services can be
expressed in terms of unit of money.
O Just as we measure weights in terms of
pounds or distance in terms of kilometers,
similarly we measure and compare the
value of good and services in term of
money.

8. O For example, a car may be listed for sale
at Rs. five lakh, a house for Rs. Fifty lakh.
The use of money as unit of account has
greatly reduced transaction cost i.e., the
time effort and expenses that go into the
purchases or sale of goods.

9. 3- Money as a standard of
deferred payments.
O In the modern world, business is mostly
conducted on the basis of credit. Ehen
goods are supplied to buyer with the
promise to pay in future, he has double
advantage.
O He sells the good in the market and make
use of them secondly he is in the position
to postpone market immediate payment
and purchases.

10. O The advantage of selling goods in the
credit by the seller or making the payment
on the certain date in future by the buyer
is only workable and acceptable in the
money economy and least in the barter
economy.
O Money is only unit of account which is
easy borrow and easy to land.

11. 4- Money is store of value
O Money also function as store of value. It
represents purchasing power overtime. Since
money is the liquid of all assets, therefore it is
easier to store value in the form of money.
O The function of money is important because
most of us do not want to spend the money
income immediately on receiving it. They prefer
to wait until they have the time and desire to
spend goods and services. In barter economy
they were face difficulty to storing wealth like
grains etc.

12. B- secondary functions of
money
O Money has the potential to influence the
economy. It influences the price level,
interest rate, utilization of resources etc.
the secondary function of money in brief
are the under:

13. 1-specialization, production
and trade.
O The use of money has helped in removing
the difficulties removing the barter. The
market mechanism, production of
commodities, specialization, expansion
and diversion the trade etc. have all been
facilitated by the use of money.

14. 2- influence or income and
consumption.
O The use of money has direct bearing on
the levels of income and consumption in
the country. All production takes place for
the market and the factor payment(rent,
wages, interest and the profits) are made
in money.
O The higher the production, the higher are
the remunerations(salary) to the factors
and vice versa.

15. 3- money is instrument of
making loans.
O Peoples save money and deposit it in the
banks. The bank advance these savings
to businessman and industrialists. Money
is thus the instrument by which savings
are transferred into investment.

16. 4- money as a tool of monetary
management.
O Money is an important tool of monetary
management. If the money is effectively
used, it helps in increasing output and
employment.
O Money is also important factor in
determining the distribution of income and
wealth among the members of the society.
O

17. 5- instrument of economic
policy.
O Money is an important instrument of
economic policy of the government. In
order to achieve growth, reduce
unemployment and maintain regular
expansion of economic activity, money is
the most powerful factor.

18. Contingent(depending)
functions.
O Contingent function are derived the
primary and secondary functions.
O 1- distribution of national income.
O Money facilitate the distribution of national
income among the various factor of
production. It also helps in
bringing(conveying) justice in distribution.

19. 2- basis of credit system.
O Bank create credit on the basis of their
case reserves with central bank. Any
change in the volume of money is brought
about mainly by an increase or decrease
the money supply.

20. 3- measure of marginal
productivity.
O The marginal productivity of each factor of
production is measured with the help of
money.
O Money is also helps in equalization of
marginal utility in expenditure.

21. 4- liquidity of property.
O Money gives the liquid form to wealth. A
property can be converted into liquid form
with the use of money.