Saturday, August 11, 2012

Class XI, Principles of Economics, "Importance of Money"

Importance of Money

In order to have a comprehensive idea of the importance of money, we can classify it as.
1. Importance to individuals in their daily life.
2. Importance to an economy.

1. Importance to Individuals in their Daily Life

Importance to individuals in their daily life is well established under the following heads

i. Removal of Double Coincidence

Money has removed the problems of double coincidence of wants. An individual because of money is in position to exercise his choice and can purchase or consume a commodity according to their liking.

ii. Convenience in Buying and Selling

Money being a measure of value, an individual can sell his goods for money and purchase the goods he needs through it. The sale and purchase of goods is not confined to with in the borders of a country only, but are also conducted abroad.

iii. Ease in Planning

Money has given an opportunity to an individual to plan his consumption in a way that he gets the maximum satisfaction out of his limited income. Because of money price of every thing is known to him on the basis of which he can ascertain that what he can afford and what he cannot.

iv. An Option for Saving

Money being a store of value helps the individual to make provision for rainy days. During the period of his earning, he may have some thing, which he can use in his old age when his earning has reduced.

v. Recovery Options

Money also helps an individual to cover the gap between income and expenditure intervals, which is done either by withdrawing the past saving or by borrowing. Saving and borrowing have become common and a part of our economic activities.

vi. Possibilities of Specialization

Money has made possible the regional specialization of production on the basis of the most favorable condition principle, which has given birth to international division of labour have reduced the cost, improved the quality and increased the verities of products. Individuals are in a position to consume superior goods at a cheaper price.

vii. Transfer of Value

Money being a measure of value helps the individuals to transfer the value of their fixed assets from one places to another in the country or out side the country. In other words even the immoveable assets have become mobile.

viii. A Source of Income

Because of lending and borrowing practices facilitated by money, the individuals saving become a source of income. The individuals make savings, invest them in productive activities and receive a regular income, which increases their welfare by improving their standard of living.

2. Importance to Economy

The economy of a country is however, benefited by money in more than one-way:

i. Enhancing Exchange Facility

Money enhances the exchange facility and extends the market for goods and services produced in the economy. The extension of market creates demand for goods and services and consequently the resources are fully exploited to increase the output so that the inc4reased demand may be adequately met.

ii. Economies of scale

Money oriented demand provides economics of scale. The economy in such a situation produces goods at a cheaper cost because of the reason that input and output ratio rises.

iii. Increased Opportunities of Employment

Increased volume of production increases the level of employment and income level follows suit. Raised income level stimulates saving and investment and consequently the investment rate in the economy rises.

iv. Facilitate International Trade

Through money international trade is facilitated, which makes the resources of an economy more mobile and such resources are exploited to the maximum extent.

v. Introduction of Lending and Borrowing

Because of money lending and borrowing have become a common practice among the nations of the world. The surplus resources o fan economy moves to another economy, which is deficient in such resources. Flow of resources helps an undeveloped to venture into her development plan. Lending and borrowing practices developed through money, exchange saving and stimulate investment n the economy. As a result the economic growth is accelerated.

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