Money and Economy
Money plays an instrumental role in shaping economic life in the country. According to Marshall “Money is a pivot around which the economic science clusters.” The significance of money can be explained as follows:
1 Importance of money in the field of consumption: Money is of great importance in consumption.To attain maximum satisfaction: A consumer can maximise his satisfaction by using money according to the law of Equi-marginal utility.
Marginal Utility:
This refers to the additional satisfaction a consumer gets from consuming one more unit of a good.
Equi-Marginal:
This means that the marginal utility derived from the last unit of money spent on each good is equalized.
Maximum Satisfaction:
By allocating their budget in this way, consumers ensure they are getting the most overall satisfaction from their limited resources.
To facilitate deferred payments: Consumer sometimes takes loan for his present consumption which is repaid on some future date. Money makes such payments possible. To make savings: A person spends a part of his present income on present consumption and saves the remaining part for the future. Hence money makes savings possible for future. To purchase various goods: with money a consumer can buy any goods of his requirement i.e. money enables a consumer to exercise his freedom of choice in consumption.
2 Importance of money in the field of production: Money has facilitated production in following ways: Large Scale Production: With the use of money large scale production has become possible in modern days. production is the possible in modern days. Production is the result of collative effort of all factors of production which get reward in terms of money. Division of Labour and specialization possible: Money has facilitated division of labour and specialization which has accelerated the pace of production in the economy. Assembling of factors of production possible: Money is the instrument which assembles all the factors of production at one place producer substitutes the factor having lesser productivity by the factors having higher productivity and it becomes possible with the use of money.
3 Importance of money in the field of exchange: Removal of barter difficulties: Money has removed the inconveniences of barter as a medium of exchange money to be acceptable by everyone. Money has also removed the difficulty in store of value which was present in barter. Development of banks and credit institutions: Money has opened the doors for developing banks and credit institutions. Use of cheques and exchange bill has made exchange easier. Capital formation possible: People save money and transfer it to productive uses. It accelerates capital formation. capital mobile: Money makes capital mobile. with use of money capital can be transferred from one place to the other.
4 Importance of money in the field of distribution: Money helps in the distribution of income among different factors of production ideally. Applying marginal productivity theory money distributes national income into wages rent interest and profits properly.
5 Importance of money in public finance: Public expenditure and income are calculated in terms of money. Imposed tax is also paid in money and public expenditure is also paid in money. with the use of money government succeeds in attaining the principle of Maximum social Advantage.
Comments
Post a Comment