5 Marks Each

Question

What is money? State its functions.

Vidyadip · Accepted Answer

1. Introduction: * As Socio-Economic life of human beings become more and more complicated, barter system was proved to be ineffective and then money was introduced and universally accepted. 2. Meaning of Money: * Different economist have given different definitions of money which are as under: * According to Marshall "Money is that medium which is used as a means of exchange without any doubt or investigation regardless of time or place". * According to Robertson money as “what is accepted universally in exchange of goods or service." * According to J.L.Herdson, "Anything which is medium of exchange and widely accepted universally" So, there are various definitions explained functions of money. 3. Functions of Money: * Functions of money are as under: (1) Medium of Exchange: * The most important function of money is to act as a medium of exchange. * Through money our monetary transactions become easy and simple. * The problem which was faced during barter system like double coincidence of wants between two individuals that got solved due to invention of money. * Due to invention of money the individual can produce the goods and can sell it and get money in return. * By giving money we can buy goods and this way the transaction by money becomes easy and smooth. * E.g. A farmer can get money in exchange of wheat and then from that money he can buy clothes, rice, ghee, shoes, furniture etc. * Due to invention of money, the drawback of barter system is solved. * Small or large transactions can be easily done. * Costly or cheaper goods can be easily sold & purchase. * An individual can sell the goods and get money in return and do savings for future need of goods and services savings. * An individual can also satisfy his wants. (2) Store of value: * Another important function of money is that it also acts as a store of value. Under barter system, it is difficult to store value. * In the absence of money the individuals have to store wealth (in the forms of assets, grains etc.) * The value of store commodities may change in the due course of time. * These goods may perish after sometime. * Secondly it is very expensive to store specific goods for long time. * Money can be stored it can be saved, used at the time of difficulties. * There is no extra cost for saving money and it is safe in bank. * Another advantage of using money as it can be used as a standard of deferred payment. * This characteristic of money is important for the entire system of credit, hire-purchase and installment payments. (3) Measure of value: * Money plays an important role as a measure of value. * In barter economy, it was difficult to remember the exchange rates and values of goods and services for 20 kg of wheat equal to how much kg of rice? * How much meter of cloths? * How much kg of Ghee? While, money makes this easier allowing the value of different goods or services can be compared and assessed with each other. * Through money, the decision for economic transactions can be taken faster. * Kilograms, meter and liter can be easily measured. (4) Other: * Money acts as the most liquid form of assets as it can be easily converted into goods and services. * Professor D.H. Robertson has rightly stated the functions of money as "Money is a matter of four functions; a medium, a measure, a standard and a store".

Year	$1951$	$1971$	$1991$	$2001$	$2011$
Population in $($crores$)$	$36$	$54$	$84$	$102$	$121$

Year	$1981$	$1991$	$2001$	$2011$
Extent of Literacy in India $(\%)$	$44$	$52$	$65$	$74$
Extent of Literacy in Gujarat $M$	$45$	$61$	$69$	$79$

Answer

Need a full question paper?

Explore more

Similar questions

MONEY AND INFLATION — Economics STD 12 Commerce — Question

Answer

Need a full question paper?

Explore more

Similar questions