Monday, 30 May 2016

A study of the role of money in economy

By role of money, I refer to the part played by money in our modern economy.

Money is regarded as the pulse of our life. Without money, there is no life or activity in this modern economy. Everything is related to money here. From morning to evening, from birth to death, you need money for something or other.

Money plays very important role in our economy. It motivates and influences all our economic activity. The economic activities of consumption, production, supply, demand, and distribution are all influenced by the money supply and power of money in any economy.

  • As a consumer, you can purchase goods and services and make payments through money which is universally accepted by one and all. 
  • As a unit of exchange and as a measure of value, money guarantees for the real value of all your goods and services.
  • To be able to pay in terms of money, you need to procure money. So,you will be earning money by doing some business or by working in a company or by doing some labour. Thus, money gets generated and rotated through our activities.
  • Money facilitates economic activity in the shape of creating businesses either in the manufacturing sector or the services sector and thereby creates more jobs for more people in different fields, which in turn boosts the economy. 
  • Money further facilitates and ensures that goods and services are produced to meet the demands of consumers. Consumers can opt for better products and multiple options as they are free to buy as and when they desire to do so. This is possible because of the storage value of money.
  • Money facilitates easy transfer and distribution of goods and services to any corner of the world as you can make payments through money at any place.
  • Money plays another important role of equalising the marginal utilities of consumers. Consumers are able to shift towards higher utility proving goods by discarding lower marginal utility products as they can distinguish the differences in utilities with the help of money as a standard of value which sets the prices of goods in terms of money.
  • So, money facilitates a rational distribution of the income of consumers among different needs and necessities. He can draw a picture of his income and expenses and match them with utmost utility levels within the given income.
  • Money makes the maintenance of accounts of any business very easy as everything is accounted in terms of money. This facilitates accurate calculation of expenses and income of any business and aids in fixation of the prices of their products.
  • Money helps the governments in collecting their taxes and in planning for their projects as they can estimate their Revenue and prepare their Budgets and thereby enables them in boosting their economy.
  • Further, money enables a continuous flow of funds from one person to another and from one corner to the other corner of the country or the world.