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Functions of Money
The functions of money can be conveniently divided in to three parts (A)
Primary (B) Secondary and (C) Contingent functions. These functions
are briefly discussed as under.
(A) Primary Functions:
(i) Money as Medium of exchange: In all market transactions money is
used to pay for goods and services. The sale or purchase of goods is
done through money. Money in other words acts as medium of exchange
and helps in overcoming the difficulty of double coincidence of wants of
barter economy.
(2) Money as a unit of account: Another important function of money is
that it provides a unit of account. The monetary unit of account is used
to measure the value of goods and services in the economy. Just as we
measure weights in terms of kilograms or distance in kilometres
similarly we measure and compare the value of goods and services in
terms of money.
(3) Money as standard of deferred payments: Another function of money
is that it is used as mean of setting debts maturing in the future. In
modern economy most of the business is done on credit. Goods are
bought and sold on the promise to pay money on a certain date in future.
Debts are stated and paid in terms of units of account.
(4) Money as a store of value: Money also functions as a store of value.
It is a reservoir of purchasing power overtime. The money which you
have today can be set aside to purchase things later on. This function of
money is useful because most of us do not to spend our income
immediately upon receiving it. They prefer to wait until they have the
time or desire to spend it.
B. SECONDARY FUNCTIONS OF MONEY
Money as potential to influence the economy. It influences the price