{"id":3234,"date":"2019-12-24T15:29:19","date_gmt":"2019-12-24T15:29:19","guid":{"rendered":"https:\/\/commerceiets.com\/?p=3234"},"modified":"2019-12-24T15:29:19","modified_gmt":"2019-12-24T15:29:19","slug":"types-of-money-in-economics","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/types-of-money-in-economics\/","title":{"rendered":"TYPES OF MONEY IN ECONOMICS"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_69_1 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/types-of-money-in-economics\/#TYPES_OF_MONEY_IN_ECONOMICS\" title=\"TYPES OF MONEY IN ECONOMICS\">TYPES OF MONEY IN ECONOMICS<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/types-of-money-in-economics\/#FUNCTIONS_OF_MONEY\" title=\"FUNCTIONS OF MONEY\">FUNCTIONS OF MONEY<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/types-of-money-in-economics\/#TYPES_OF_MONEY_IN_ECONOMICS-2\" title=\"TYPES OF MONEY IN ECONOMICS\">TYPES OF MONEY IN ECONOMICS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/types-of-money-in-economics\/#ADVANTAGES_OF_MONEY\" title=\"ADVANTAGES OF MONEY\">ADVANTAGES OF MONEY<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/types-of-money-in-economics\/#DISADVANTAGES_OF_MONEY\" title=\"DISADVANTAGES OF MONEY\">DISADVANTAGES OF MONEY<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"types-of-money-in-economics\"><span class=\"ez-toc-section\" id=\"TYPES_OF_MONEY_IN_ECONOMICS\"><\/span>TYPES OF MONEY IN ECONOMICS<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"has-text-align-center\"><strong>WHAT IS MONEY?<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"300\" height=\"168\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2022\/01\/download-51.jpg\" alt=\"\" class=\"wp-image-5137\"\/><figcaption>types of money in economics<\/figcaption><\/figure>\n\n\n\n<p>Money is an economic unit that functions as a generally\nrecognized medium of exchange for transactional purposes in an economy. It is a\ncommodity which is widely accepted in payment of goods and services in settlement\nof debts can be called as money.<\/p>\n\n\n\n<p>Money is commonly referred to as currency. Economically,\neach government has its own currency system. Money is a liquid asset used in\nthe settlement of transactions. &nbsp;<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background\"><strong>ACCORDING TO PROF. WALKER<\/strong><\/p>\n\n\n\n<p>\u201cMoney is that money does.\u201d<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background\"><strong>ACCORDING TO SALIGMAN<\/strong><\/p>\n\n\n\n<p>\u201cMoney is one thing that possesses general acceptability.\u201d<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background\"><strong>ACCORDING TO GEOFFREY CROWTHER<\/strong><\/p>\n\n\n\n<p>\u201cMoney is anything that is generally accepted as a means of\nexchange and at the same time acts as a measure and as a store of value.\u201d<\/p>\n\n\n\n<p class=\"has-text-align-center\"><strong>FEATURES OF MONEY<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"306\" height=\"164\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2022\/01\/download-52.jpg\" alt=\"\" class=\"wp-image-5138\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2022\/01\/download-52.jpg 306w, https:\/\/commerceiets.com\/wp-content\/uploads\/2022\/01\/download-52-300x161.jpg 300w\" sizes=\"(max-width: 306px) 100vw, 306px\" \/><figcaption>types of money in economics<\/figcaption><\/figure>\n\n\n\n<p><strong>1. General Acceptability:<\/strong><\/p>\n\n\n\n<p>Money is accepted by all as a medium of exchange. Thus, it has\ngeneral acceptability. No one denies to accept money as a medium of exchange.\nPeople do not hesitate to accept it as standard of payment.<\/p>\n\n\n\n<p><strong>2. Measure of Value:<\/strong><\/p>\n\n\n\n<p>Value of any good or service can easily be measured in terms of\nmoney. It is accepted as a measure of value.<\/p>\n\n\n\n<p><strong>3. Active Agent:<\/strong><\/p>\n\n\n\n<p>Money is an active agent of an economic system. In modern economy,\nmoney is required in every commercial process. Process of production cannot\nstart without the participation of money.<\/p>\n\n\n\n<p><strong>4. Liquid Assets:<\/strong><\/p>\n\n\n\n<p>Money is highly liquid asset. It can easily be converted in goods\nand services. Debt, stock and bills, etc., are the other liquid assets but the\nliquidity of money is highest than the other liquid assets. One has to first\nget to convert other liquid assets into money, then it can be converted in\ndesired goods or services, while money can directly be converted.<\/p>\n\n\n\n<p><strong>5. Money is a Means and not an End:<\/strong><\/p>\n\n\n\n<p>The word money is means to acquire things desired. Money itself\ncannot be used to satisfy. It is indirectly used to get any goods or services\nto satisfy human wants.<\/p>\n\n\n\n<p><strong>6. Voluntary Acceptability:<\/strong><\/p>\n\n\n\n<p>Money is voluntarily accepted by people. There is no requirement\nto get legal approval. People always wish to hold money.<\/p>\n\n\n\n<p><strong>7. Government Control:<\/strong><\/p>\n\n\n\n<p>Reserve Bank of India and Govt, of India have an authority to\nissue currency which is accepted as a form of money in India. No other\nauthority can issue currency notes. Thus, the government keeps control over the\nmoney supply in the country.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"functions-of-money\"><span class=\"ez-toc-section\" id=\"FUNCTIONS_OF_MONEY\"><\/span>FUNCTIONS OF MONEY<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"300\" height=\"168\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2022\/01\/download-53.jpg\" alt=\"\" class=\"wp-image-5139\"\/><figcaption>types of money in economics<\/figcaption><\/figure>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p>\u201cMoney is a matter of function four, <\/p><p>A medium, a measure, a standard, a store,<\/p><p>As it does not complete this picture,<\/p><p>We may add some transferability more.\u201d<\/p><\/blockquote>\n\n\n\n<p>The functions of money can be categorized as follows:<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background\"><strong>PRIMARY FUNCTIONS<\/strong><\/p>\n\n\n\n<p>Primary functions are the main functions of the money which\nare as follows:<\/p>\n\n\n\n<p><strong>MEDIUM OF EXCHANGE:<\/strong> The most important function of money is that it acts as a medium of exchange to facilitate transactions. Without money, all transactions would have to be conducted by barter system i.e. with the use of commodities in return of commodities. Money has the feature of \u2018general acceptability\u2019 and therefore it is an intermediary for goods and services in exchange. <\/p>\n\n\n\n<p>In present times, everything can be valued in terms of money. That is why all the commodities are exchanged with the use of the money. Money has removed the problem of barter system of double coincidence of wants. The likelihood of a double coincidence of wants, however, is small and makes the exchange of goods and services rather difficult. <\/p>\n\n\n\n<p>Money effectively eliminates the double coincidence of wants problem by serving as a medium of exchange that is accepted in all transactions, by all parties, regardless of whether they desire each other\u2019s goods and services.<\/p>\n\n\n\n<p><strong>MEASURE OF VALUE: <\/strong>Money\nalso functions as a unit of account, providing a common measure of the value of\ngoods and services being exchanged. Knowing the value or price of a good, in\nterms of money, enables both the supplier and the purchaser of the good to make\ndecisions about how much of the good to supply and how much of the good to\npurchase.<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background\"><strong>SECONDARY FUNCTIONS<\/strong><\/p>\n\n\n\n<p>The secondary or subsidiary functions of money are as\nfollows:<\/p>\n\n\n\n<p><strong>STORE OF VALUE: <\/strong>In order to be a medium of exchange, money must hold its value over time; that is, it must be a store of value. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. <\/p>\n\n\n\n<p>Furthermore, money is an easily transported store of value that is available in a number of convenient denominations.<\/p>\n\n\n\n<p><strong>STANDARD OF DEFERRED PAYMENTS: <\/strong>Deferred payments are those payments which are to be made in the near future. Money is accepted as a medium of exchange that is why it becomes the standard of deferred payments. Every day, millions of transactions take place in which payments are not made immediately. <\/p>\n\n\n\n<p>Money encourages such transactions and helps in capital formation and economic development of the economy. This function of money is significant because:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Money as a standard of deferred payments has\nsimplified the borrowing and lending operations.<\/li><li>It has led to the creation of the financial\ninstitutions.<\/li><\/ul>\n\n\n\n<p>Money is undoubtedly a best standard of deferred payments\nbecause of the following features:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The value of money is relatively more stable as\ncompared to other commodities.<\/li><li>Money is a durable commodity.<\/li><li>Money is generally acceptable in exchange.&nbsp;&nbsp;&nbsp; <\/li><\/ul>\n\n\n\n<p><strong>TRANSFER OF WEALTH: <\/strong>Money also facilitates the transfer of wealth. With the use of money wealth can be transferred to anybody. Also in the present times, the facility of e-banking can be availed to transfer the funds from one place to another.<\/p>\n\n\n\n<p><em>Example:<\/em> A person can dispose off his property at one place and can purchase the new one at another place by giving the currency i.e. money in return.<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background\"><strong>CONTINGENT FUNCTIONS<\/strong><\/p>\n\n\n\n<p><strong><em>Prof. Kinley <\/em><\/strong>has given the contingent functions of the money which are as follows:<\/p>\n\n\n\n<p><strong>BASIS OF CREDIT: <\/strong>In recent years, the significance of the credit has increased in all parts of the world, Credit instruments such as cheques, bills of exchange etc. are extensively used. Money is the basis of credit. Without money, credit instruments cannot circulate. For example: depositors can make use of cheques only when they have sufficient funds in their accounts.<\/p>\n\n\n\n<p><strong>FACILITATES DISTRIBUTION OF NATIONAL INCOME: <\/strong>Money helps in the distribution of national income among the factors of production across the economy. There are four factors of production i.e. land, labor, capital and entrepreneur. Money is divided among all these factors of production in the form of rent, wages, interest and profits. The share of each factor of production is determined in terms of money and each factor is paid the regard for its contribution in terms of money.<\/p>\n\n\n\n<p><strong>EQUALIZE MARGINAL UTILITIES AND MARGINAL PRODUCTIVITIES: <\/strong>Every rational consumer tries to secure maximum utility out of his expenditure. But the consumer can derive maximum satisfaction only if he makes expenditure on a bundle of commodities in such as way as to equate marginal utilities accruing from them. Money plays an important role in equalizing these marginal utilities because the prices of all commodities are expressed in terms of money.<\/p>\n\n\n\n<p><strong>INCREASES THE PRODUCTIVITY OF CAPITAL: <\/strong>Capital may take several forms, but money is the most liquid form of capital. Capital in the form of money can be put to any use. It is because of this liquidity of money that capital can be shifted from the less production to the more productive uses. The mobility of capital has also increased on account of the liquidity of the money.<\/p>\n\n\n\n<p><strong>HELPS TO MAINTAIN REPAYMENT CAPACITY: <\/strong>Money characterizes the virtue of general acceptability. Therefore, to maintain its capacity to pay, every individual and firm has to keep some amount of liquid money in its assets. By doing so, the firm protects its repayment capacity. Similarly, banks insurance companies and even governments keep some money in the liquid form so that they are able to maintain their repayment capacity.<\/p>\n\n\n\n<p><strong>MONEY REPRESENTS GENERALIZED PURCHASING POWER: <\/strong>Money represents the purchasing power. This purchasing power stored in terms of money can be put to any use. It is not necessary that the money should be utilized for the same purpose for which it has been saved. For example: if a person has saved now to construct a house sometime in future, it is not necessary that he should utilize that saving only for constructing the house. The saver may prefer to spend it on some other more important uses such as education of his children. <\/p>\n\n\n\n<p>Objectives for which saving has been made may change overtime. If the objective of the saver changes, he faces no difficulty because money represents generalized power that can be put to any use saver likes.<\/p>\n\n\n\n<p><strong>MONEY DETERMINES THE SOLVENCY:<\/strong> As a matter of fact the solvency of any individual or a firm is determined by considering that the monetary liabilities are properly met or not. If an individual or a firm fails to meet out their monetary liabilities then they are declared as bankrupt.<\/p>\n\n\n\n<p class=\"has-pale-cyan-blue-background-color has-background\"><strong>According to RP KENT<\/strong><\/p>\n\n\n\n<p>\u201cMoney serves as guarantee of solvency.\u201d <\/p>\n\n\n\n<p><strong>MONEY PROVIDES LIQUIDITY TO CAPITAL: <\/strong>Money is the most liquid form of capital and can be put to any use. It is essential to keep capital in a liquid form for variety of motives. According to John Maynard Keynes, money is kept liquid in form of four motives:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Income motive<\/li><li>Transaction motive<\/li><li>Precautionary motive<\/li><li>Speculative motive.<\/li><\/ul>\n\n\n\n<p>According to <strong><em>Paul Einzing<\/em><\/strong>, the functions of money can be classified as static functions and dynamic functions which are as follows:<\/p>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background\"><strong>STATIC FUNCTIONS<\/strong><\/p>\n\n\n\n<p>Static functions are those functions which facilitate the\nsmooth functioning of the economy. These functions are also known as\ntraditional, fixed or technical functions of the money. These are all static\nfunctions because without these functions of the economy cannot work in\npractice. The following are the static functions of money:<\/p>\n\n\n\n<p><strong>MEDIUM OF EXCHANGE:<\/strong> The most important function of money is that it acts as a medium of exchange to facilitate transactions. Without money, all transactions would have to be conducted by barter system i.e. with the use of commodities in return of commodities. Money has the feature of \u2018general acceptability\u2019 and therefore it is an intermediary for goods and services in exchange. In present times, everything can be valued in terms of money. <\/p>\n\n\n\n<p>That is why all the commodities are exchanged with the use of the money. Money has removed the problem of barter system of double coincidence of wants. The likelihood of a double coincidence of wants, however, is small and makes the exchange of goods and services rather difficult. Money effectively eliminates the double coincidence of wants problem by serving as a medium of exchange that is accepted in all transactions, by all parties, regardless of whether they desire each other\u2019s goods and services.<\/p>\n\n\n\n<p>\u2018Price mechanism\u2019 is another concept added by Paul Einzing\nin the function of money as a medium of exchange. The value of goods and\nservices are expressed in terms of money through which price mechanism operates\nand balance between demand for and supply of goods and services is established.<\/p>\n\n\n\n<p><strong>MEASURE OF VALUE: <\/strong>Money\nalso functions as a unit of account, providing a common measure of the value of\ngoods and services being exchanged. Knowing the value or price of a good, in\nterms of money, enables both the supplier and the purchaser of the good to make\ndecisions about how much of the good to supply and how much of the good to\npurchase.<\/p>\n\n\n\n<p><strong>STORE OF VALUE:<\/strong>\nIn order to be a medium of exchange, money must hold its value over time; that\nis, it must be a store of value. If money could not be stored for some period\nof time and still remain valuable in exchange, it would not solve the double\ncoincidence of wants problem and therefore would not be adopted as a medium of\nexchange. Furthermore, money is an easily transported store of value that is\navailable in a number of convenient denominations.<\/p>\n\n\n\n<p><strong>STANDARD OF DEFERRED PAYMENTS: <\/strong>Deferred payments are those payments which are to be made in the near future. Money is accepted as a medium of exchange that is why it becomes the standard of deferred payments. Every day, millions of transactions take place in which payments are not made immediately. Money encourages such transactions and helps in capital formation and economic development of the economy. This function of money is significant because:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Money as a standard of deferred payments has\nsimplified the borrowing and lending operations.<\/li><li>It has led to the creation of the financial\ninstitutions.<\/li><\/ul>\n\n\n\n<p>Money is undoubtedly a best standard of deferred payments\nbecause of the following features:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The value of money is relatively more stable as\ncompared to other commodities.<\/li><li>Money is a durable commodity.<\/li><li>Money is generally acceptable in exchange.&nbsp;&nbsp;&nbsp; <\/li><\/ul>\n\n\n\n<p class=\"has-text-align-center has-pale-cyan-blue-background-color has-background\"><strong>DYNAMIC FUNCTIONS<\/strong><\/p>\n\n\n\n<p>Dynamic functions of money directly and actively influences\nthe economic activities of the economy. Dynamic functions have their impact on\nthe economic activities directly or indirectly such as impact of money on price\nlevel, production level, rate of interest, distribution of income and wealth\netc. the following are the various dynamic functions:<\/p>\n\n\n\n<p><strong>BASIS OF CREDIT: <\/strong>In recent years, the significance of the credit has increased in all parts of the world, Credit instruments such as cheques, bills of exchange etc. are extensively used. Money is the basis of credit. Without money, credit instruments cannot circulate. For example: depositors can make use of cheques only when they have sufficient funds in their accounts.<\/p>\n\n\n\n<p><strong>FACILITATES DISTRIBUTION OF NATIONAL INCOME<\/strong>: Money helps in the distribution of national income among the factors of production across the economy. There are four factors of production i.e. land, labor, capital and entrepreneur. Money is divided among all these factors of production in the form of rent, wages, interest and profits. The share of each factor of production is determined in terms of money and each factor is paid the regard for its contribution in terms of money.<\/p>\n\n\n\n<p><strong>EQUALIZE MARGINAL UTILITIES AND MARGINAL PRODUCTIVITIES<\/strong>: Every rational consumer tries to secure maximum utility out of his expenditure. But the consumer can derive maximum satisfaction only if he makes expenditure on a bundle of commodities in such as way as to equate marginal utilities accruing from them. Money plays an important role in equalizing these marginal utilities because the prices of all commodities are expressed in terms of money.<\/p>\n\n\n\n<p><strong>INCREASES THE PRODUCTIVITY OF CAPITAL<\/strong>: Capital may take several forms, but money is the most liquid form of capital. Capital in the form of money can be put to any use. It is because of this liquidity of money that capital can be shifted from the less production to the more productive uses. The mobility of capital has also increased on account of the liquidity of the money.<\/p>\n\n\n\n<p><strong>HELPS TO MAINTAIN REPAYMENT CAPACITY<\/strong>: Money characterizes the virtue of general acceptability. Therefore, to maintain its capacity to pay, every individual and firm has to keep some amount of liquid money in its assets. By doing so, the firm protects its repayment capacity. Similarly, banks insurance companies and even governments keep some money in the liquid form so that they are able to maintain their repayment capacity.<\/p>\n\n\n\n<p><strong>MONEY REPRESENTS GENERALIZED PURCHASING POWER<\/strong>: Money represents the purchasing power. This purchasing power stored in terms of money can be put to any use. It is not necessary that the money should be utilized for the same purpose for which it has been saved. For example: if a person has saved now to construct a house sometime in future, it is not necessary that he should utilize that saving only for constructing the house. The saver may prefer to spend it on some other more important uses such as education of his children. <\/p>\n\n\n\n<p>Objectives for which saving has been made may change overtime. If the objective of the saver changes, he faces no difficulty because money represents generalized power that can be put to any use saver likes.<\/p>\n\n\n\n<p><strong>MONEY PROVIDES LIQUIDITY TO CAPITAL<\/strong>: Money is the most liquid form of capital and can be put to any use. It is essential to keep capital in a liquid form for variety of motives. According to John Maynard Keynes, money is kept liquid in form of four motives:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Income motive<\/li><li>Transaction motive<\/li><li>Precautionary motive<\/li><li>Speculative motive.<\/li><\/ul>\n\n\n\n<p>In simple words, dynamic functions are those functions which\ncause movements in the level of economic activity in the economy. Money brings\nabout changes in the price level and results into inflation or deflation. Moreover\nmoney ensures fuller utilization of available human and natural resources to\nincrease the level of output and income and as a result international trade\nexpands.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"types-of-money-in-economics\"><span class=\"ez-toc-section\" id=\"TYPES_OF_MONEY_IN_ECONOMICS-2\"><\/span>TYPES OF MONEY IN ECONOMICS<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>There are various types of money in economics discipline\nwhich are as follows:<\/p>\n\n\n\n<p><strong>COMMODITY MONEY<\/strong><\/p>\n\n\n\n<p>Commodity money is also known as full bodied money.\nCommodity money is the money that has intrinsic value. Intrinsic value means\nthat the commodity has value even if it not used as money. It is a means of\npayment made out of precious metals such as gold or silver or other valuable\ncommodities. It is known as full bodied money because its value is materially\nequivalent to that of its component stuff. It acts not only a medium of\nexchange but is also a store of purchasing power.<\/p>\n\n\n\n<p><strong>REPRESENTATIVE MONEY<\/strong><\/p>\n\n\n\n<p>Representative money is generally made either of cheap\nmetals or paper notes. The intrinsic value of the representative money is less than\nits face value. Currency notes are good examples of representative money in\nIndia. Representative money may or may not be converted into full-bodied money.<\/p>\n\n\n\n<p><strong>CREDIT MONEY OR NEAR MONEY<\/strong><\/p>\n\n\n\n<p>Near money refers to those objects which can be held with\nlittle loss of liquidity. Near money includes cheques, drafts, bolls of exchange\netc. It is also known as bank money as this consists of the deposits of the\npeople held with banks, which are payable on demand by the depositors.<\/p>\n\n\n\n<p><strong>LEGAL TENDER MONEY<\/strong><\/p>\n\n\n\n<p>Legal tender money is the currency which has got legal\nsanction or approval by the government. It means that the individual is bound\nto accept it in exchange for goods and services; it cannot be refused in\nsettlement of payments of any kind. It is of two types:<\/p>\n\n\n\n<p><em>Limited legal tender money: <\/em>It is that money which no person can be forced to accept beyond a certain limit. For example: In India small coins of denomination of 1,2,5 paise are legal tender only up to Rs. 25. Beyond this limit, anybody can refuse the payment.<\/p>\n\n\n\n<p><em>Unlimited legal tender money: <\/em>It is that money which a person has to accept up to any limit. For example: All Indian currency notes are unlimited legal tender money.<\/p>\n\n\n\n<p><strong>ELECTRONIC MONEY<\/strong><\/p>\n\n\n\n<p>Electronic money involves computer networks to perform\nfinancial transactions electronically. Electronic Funds Transfer (EFT) and\ndirect deposits are examples of electronic money. The financial institutions\ntransfer the money from one bank account to another by means of computer and\ncommunication links. A country wide computer network would monitor the credits\nand debits of all individuals, firms and government as transactions take place\nin the economy.<\/p>\n\n\n\n<p>It exchanges funds every day without the physical movement\nof any paper money. This would eliminate the use of cheques and reduce the need\nfor the currency. <\/p>\n\n\n\n<p><strong>FIAT MONEY<\/strong><\/p>\n\n\n\n<p>Fiat money is any money whose value is determined by legal\nmeans. It is the money that has no intrinsic value but that has value as money\nbecause government decreed that it has value for that purpose. Fiat money is\npossible because the three functions of money- a medium of exchange, a measure\nof value and a store of value are fulfilled as long as all people in society\nacknowledge that the fiat money is a valid form of currency.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"advantages-of-money\"><span class=\"ez-toc-section\" id=\"ADVANTAGES_OF_MONEY\"><\/span>ADVANTAGES OF MONEY<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Money plays a significant role in the whole functioning of the\neconomy. Its advantages are as follows:<\/p>\n\n\n\n<p><strong>MONEY AND PRODUCTION<\/strong><\/p>\n\n\n\n<p>Money helps in various ways in the process of production. Money can help producers to decide, plan, execute and manage the production activities, moreover, the existence of money helps the producers to assess the quality and quantity of <a href=\"https:\/\/commerceiets.com\/demand\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"demand (opens in a new tab)\">demand<\/a> of a consumer regarding the product produced.<\/p>\n\n\n\n<p><strong>MONEY AND CONSUMPTION<\/strong><\/p>\n\n\n\n<p>Money has a great importance in consumption. &nbsp;All the consumers consume the products by\nbuying it from the market. The goods are bought in consideration of the money. So\nmoney helps in fulfillment of wants of the consumers.<\/p>\n\n\n\n<p><strong>MONEY AND DISTRIBUTION<\/strong><\/p>\n\n\n\n<p>Money helps in the distribution of national income among the\nfactors of production across the economy. There are four factors of production\ni.e. land, labor, capital and entrepreneur. Money is divided among all these\nfactors of production in the form of rent, wages, interest and profits. The\nshare of each factor of production is determined in terms of money and each\nfactor is paid the regard for its contribution in terms of money.<\/p>\n\n\n\n<p><strong>MONEY AND CAPITAL FORMATION<\/strong><\/p>\n\n\n\n<p>Money is essential to facilitate capital formation, Savings\nof people can be mobilized in the form of money and these mobilized savings can\nbe invested in more profitable ventures. Financial institutions are the part of\nthis process. They mobilize the savings and channelize them to productive uses.<\/p>\n\n\n\n<p><strong>MONEY AND PUBLIC FINANCE<\/strong><\/p>\n\n\n\n<p>Public finance deals with the income and expenditure of the government.\nGovernment receives its income in the form of the money through taxes and other\nmeans and make expenditures in development and administrative processes.<\/p>\n\n\n\n<p><strong>MONEY AND EXTERNAL TRADE<\/strong><\/p>\n\n\n\n<p>Money has facilitated trade not only inside the country but\nalso with the outside countries. With the use of the money, goods and services\ncan easily and rapidly be exchanged. Though in external trade foreign\ncurrencies are used in receipts and payments but they are exchanged with the\nhelp of domestic currencies.<\/p>\n\n\n\n<p><strong>MONEY AND ECONOMIC DEVELOPMENT<\/strong><\/p>\n\n\n\n<p>Supply of money is a country affects its economic\ndevelopment. If the money supply is more, then it may lead to inflationary\nsituation in the economy which may hamper growth. Similarly, if the supply of\nmoney is lesser than what is required then there will be shortage of liquidity which\nwill lead to lesser investments and hence lesser employment.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"disadvantages-of-money\"><span class=\"ez-toc-section\" id=\"DISADVANTAGES_OF_MONEY\"><\/span>DISADVANTAGES OF MONEY<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The disadvantages of money are as follows:<\/p>\n\n\n\n<p><strong>ECONOMIC INSTABILITY<\/strong><\/p>\n\n\n\n<p>Several economists are of the opinion that money is responsible\nfor economic instability in the capitalist economies. In the absence of money,\nsaving was equal to investment. Those who saved also invested. But in a monetized\neconomy, saving is done by certain people and investment by some other people.\nHence, saving and investment need not to be equal. When saving in an economy\nexceeds investment, then national income, output and employment decrease and\neconomy falls into depression. &nbsp;&nbsp;<\/p>\n\n\n\n<p>On the other hand, when\ninvestment exceeds saving, then national income, output and employment increase\nand that leads to prosperity. But if the process of money creation and\ninvestment continues beyond the point of full employment, inflationary\npressures will be created. Thus inequality between saving and investment are\nknown to be main cause of economic fluctuations.<\/p>\n\n\n\n<p>The\nmain evil of money lies in its liability of being over-issued in the case of\ninconvertible paper money. The over-issue of money may lead to hyper-inflation.\nExcessive rise in prices brings suffering to the consuming public and fixed\nincome earners. It encourages speculation and inhibits productive enterprises.\nIt adversely affects distribution of income and wealth in the community so that\nthe gulf between the rich and poor increases.<\/p>\n\n\n\n<p><strong>ECONOMIC INEQUALITIES<\/strong><\/p>\n\n\n\n<p>Money\nis a very convenience tool for accumulating wealth and of the exploitation of\nthe poor by the rich. It has created an increasing gulf between the \u2018haves\u2019 and\nthe \u2018have-nots. The misery and degradation of the poor is, thus, in no small\nmeasure due to the existence of money.<\/p>\n\n\n\n<p><strong>MORAL DEPRAVITY<\/strong><\/p>\n\n\n\n<p>Money\nhas weakened the moral fiber of man. The evils to be found in the affluent\nsociety are only too obvious. The rich monopolizes all the social evils like\ncorruption, the wine and the woman. In this case, money has proved to be a\nsoul-killing weapon.<\/p>\n\n\n\n<p><strong>MEDIUM OF EXPLOITATION<\/strong><\/p>\n\n\n\n<p>Prominent socialist like Marx and Lenin condemned money but it helps the rich to exploit the poor. When the communists came to power in Russia, they tried to abolish money. But they soon realized that to run a modern economy without money was impossible. All economic activity has to be based on monetary calculations. Accordingly, money is fully and firmly established in all Socialists States. Money performs several functions like facilitating optimum allocation of the country\u2019s resources, functions as a medium of exchange and a measure of value, guides economic activity and is essential for facilitating distribution of national income.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/demand\/\">Theory of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-demand\/\">Law of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/demand-function\/\">Demand Function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/exceptions-of-law-of-demand\/\">Exceptions of law of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/elasticity-of-demand\/\">Elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/change-in-demand\/\">Change in demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/price-elasticity-of-demand\/\">Price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-law-of-demand-and-elasticity-of-demand\/\">Law of demand Vs Elasticity of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/factors-affecting-price-elasticity-of-demand\/\">Factors affecting price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/production-function\/\">Production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-short-run-long-run-production-function\/\">Short run vs long run production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-variable-proportions\/\">Law of variable proportions<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/types-of-demand\/\">Types of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/managerial-economics\/\">Managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/characteristics-of-managerial-economics\/\">Characteristics of managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-managerial-economics\/\">Scope of managerial economics<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/utility-analysis\/\">Utility analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-marginal-utility\/\">Law of diminishing marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-equi-marginal-utility\/\">Law of equi marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium\/\">Consumers Equilibrium<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/indifference-curve-analysis\/\">Indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium-using-indifference-curve-analysis\/\">Consumer equilibrium using indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-tp-ap-and-mp\/\">Relationship between TP, AP and MP<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-increasing-returns\/\">Law of increasing returns<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-returns\/\">Law of diminishing returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/\">Law of constant returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/returns-to-scale\/\">Returns to Scale<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/economies-and-diseconomies-of-scale\/\">Economies and diseconomies of scale<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/concept-of-costs\/\">Concept of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-ac-and-mc\/\">Relationship between AC and MC<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/traditional-theory-of-cost\/\">Traditional theory of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/modern-theory-of-cost\/\">Modern theory of costs<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explicit-vs-implicit-costs\/\">Explicit vs Implicit costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/revenue\/\">Revenue<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-competition\/\">Perfect competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-meaning\/\">Monopoly<\/a>&nbsp;<\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/price-discrimination\/\">Price discrimination<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-perfect-competition-and-monopoly\/\">Difference between perfect competition and monopoly<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-and-monopolistic-competition\/\">Perfect Vs Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-and-monopolistic-competition\/\">Monopoly and monopolistic competition<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/product-differentiation-strategy\/\">Product differentiation strategy<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopolistic-competition\/\">Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/national-income-in-india\/\">National Income in India<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/\">Measurement of national income in India<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/consumption-function\/\">Consumption function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/keynesian-psychological-law-of-consumption\/\">Keynes Psychological law of consumption<\/a><\/td><td><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"512\" height=\"152\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-cropped-Presentation-resize-1.jpg\" alt=\"types of money in economics\" class=\"wp-image-4836\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-cropped-Presentation-resize-1.jpg 512w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-cropped-Presentation-resize-1-300x89.jpg 300w\" sizes=\"(max-width: 512px) 100vw, 512px\" \/><figcaption>types of money in economics<\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>TYPES OF MONEY IN ECONOMICS WHAT IS MONEY? Money is an economic unit that functions as a generally recognized medium of exchange for transactional purposes in an economy. It is a commodity which is widely accepted in payment of goods and services in settlement of debts can be called as money. Money is commonly referred&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/types-of-money-in-economics\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;TYPES OF MONEY IN ECONOMICS&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":3235,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[113],"tags":[],"class_list":["post-3234","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-managerial-economics"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3234"}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=3234"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3234\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/3235"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=3234"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=3234"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=3234"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}