Functions/roles of money
- Money is a unit of account. This means that it is used as a unit of value for carrying out calculations and accounting procedures so as to effect business transactions.
- Money is a medium of exchange. Money makes it possible to determine the value and quantity of commodities to be exchanged hence facilitating business transactions.
- Money is a standard measure of value. Through the use of money, the relative values or prices of commodities can be determined. Money therefore reflects the quantity and quality of goods sold and bought in the market.
- Money is a standard measure of deferred payments (future payments).Money facilitates payments of debts and transactions to some future time. This makes it possible to carry out transactions without immediate cash payments.
- Money is a store of value or wealth. When properties like land or buildings are converted into monetary terms, the money can be stored. This is because money is not bulky and it is not perishable.
- Money helps in the planning process and budgeting. This is because the estimation of costs and benefits of projects is done in monetary terms.
- Money serves as a tool which the government uses in monetary policy. This is because monetary policy involves the adjustment of volume and value of money in circulation in order to bring about general economic stability.
- Money facilitates one way payments. This helps to simplify the misunderstandings between the parties concerned e.g. taxes are paid in monetary terms.
- Money makes it possible for price mechanism to operate since prices are determined in monetary terms.
CATEGORIES Economics
TAGS Dr. Bbosa Science
