Here the current credit transactions are measured in money with a future value. A Measure of Value or Unit of Account or Means of Valuation 3. Suppose Mike the mechanic worked for five weeks straight on Margie's minivan. It forms the basis for credit transactions. If goods are more expensive a £10 note will buy less over time. Durability of money means that it can be replaced when it is worn out. Again, suppose a man has diamonds.
This is not always possible. However, if there were no inflation, then money would serve as a near-perfect store of value. Various economists and monetary experts defined money from different angles. For example, it is much easier to transfer one lakh rupees through bank draft from person A in Amritsar to person B in Bombay than remitting the same value in commodity terms, say wheat. Normally, the value of money, i.
Fiat Money Fiat money gets its value from a government order i. Inflation reduces the effectiveness of money as a medium of exchange. If money is used to pay wages then no one will grudge. Money was invented as an alternative to bartering. Even a socialist economy, where the price system does not play so important a role as under capitalism, cannot do without money. Although wealth can be stored in other forms also, but money is the most economical and convenient way.
Price mechanism plays a vital role in capitalism. This serves two basic purposes: 1 Households consumers can plan their expenditure and 2 Business people can keep records of income and costs in order to work out their profit and loss figures. Any commodity can be measured in monetary terms. In the barter economy a great difficulty was experienced in the exchange of goods as the exchange in the barter system required double coincidence of wants. But, believe it or not, if you walk through the streets of any major city in America and you ask people randomly, many of them will still tell you they think our money is connected to gold. So the introduction of money has got over the difficulty of barter. Commodity money is closely related to and originates from a barter system, where goods and services are directly exchanged for other goods and services.
Where can a mason find an oil refiner who happens to need a brick wall? The amount of taxes and other dues are collected in the form of money. Barter system is very inconvenient. Money takes various forms, such as coins, banknotes and the money that is held in savings and checking accounts. Today I get paid in lightbulbs, because there's no cash. With a high rate of inflation, the real value of debt erodes. Without the use of money, modern economy will not run smoothly and the production will get a serious setback. All such thing enhances the importance of money more for us.
Every time he buys a cake from Margie's bakery, he exchanges the money he earned from his job for a cake. To be satisfactory measure of value, the monetary units must be invariable. Thus, if there are 1,000 goods, one of which is a unit of account, then there will be 4, 99,500 prices or separate exchange rates. However, this statement holds only if there is no severe inflation or deflation in the country. It includes all the coins and notes. Medium of Exchange: As a medium of exchange, money has removed the major difficulty of lack of double coincidence of wants in barter system.
That price is quoted in terms of money. It becomes easier to compare the relative values of any two commodities. He cannot preserve his wealth in the form of cattle. He can use the money to buy the things he wants most, from those who offer him the best bargain not necessarily those who bought his cow , at the time he considers most advantageous not necessarily immediately. Or the government should give it legal sanction. Borrower may not be able to arrange goods of exactly the same quality at the time of repayment.
Red blood cells surge through veins and arteries providing the body with the precious oxygen that sustains life. Early forms of money were silver and gold coins. Gold is excellent for such purposes. Money has overcome the drawbacks of barter system in the following manner: 1. Yet he will have to receive more wheat in the coming weeks. Commodity Money Commodity money is the simplest and most likely also the oldest type of money.