Consumers compare the values of alternative purchases m terms of money Producers also compare the values of alternative purchases m terms of money. Coins could be counterfeited, but they also created a new , which helped lead to banking. In this way, individuals can specialize in one area and increase productivity with that item. Creditors gain when there is a rise in the value of money or fall in the price level and creditors loose when there is a fall in the value of money or rise in the price level. Paper money from different countries At around the same time in the , a vigorous was created during the 7th—12th centuries on the basis of the expanding levels of circulation of a stable high-value currency the.
The function of money serves as the generally accepted method of trade for a product or service. It becomes easier to compare the relative values of any two commodities. This example, of course, is rather ridiculous but what it points out is that anything can be money as long as it is generally acceptable as such. In case of deferred payments, some problems may come in the way. In the ancient world Juno was often associated with money. Money has the merit of general acceptability so; it can be easily exchanged for goods at all times.
Commodity money value comes from the commodity out of which it is made. It means, exchange of goods must be settled simultaneously. Money performs many functions in a modern economy. Secondary Functions: A Standard of Deferred Payments: We knew that money serves as a medium of exchange. Instability in the value of money affects various sections of the society differently. Most modern textbooks now list only three functions, that of , , and , not considering a standard of deferred payment as a distinguished function, but rather subsuming it in the others. Durability of money means that it can be replaced when it is worn out.
It forms the basis for credit transactions. They could also set the terms at which they would redeem notes for specie, by limiting the amount of purchase, or the minimum amount that could be redeemed. Money makes trading easier by replacing the barter system with a system that involves currency, coins, or checks. Deflation was the more typical situation for over a century when gold and paper money backed by gold were used as money in the 18th and 19th centuries. It is not always easy to define money. Of course that trust can be abused.
Measure of value Main article: A unit of account in economics is a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions. First, since a note has no intrinsic value, there was nothing to stop issuing authorities from printing more of it than they had specie to back it with. As economies developed, commodity money was eventually replaced by , such as the , as traders found the physical transportation of gold and silver burdensome. It enabled the sale of in , and the redemption of those in paper. Currently, bank money is created as electronic money.
. Counterfeiting is almost as old as money itself. This is called and the attempt to create a bimetallic standard where both gold and silver backed currency remained in circulation occupied the efforts of inflationists. In other words, it is quite obvious that money can only act effectively as a store of value if its own value is stable. If credit transactions were to be carried on the basis of commodities, there would be a lot of difficulties and it will affect trade.
Considerations Money tends to be regulated by the governments of the countries that use the money. In order for an item to be considered money, it has to to a reasonable degree hold its purchasing power over time. However, they did not displace commodity money, and were used alongside coins. This, however, does not mean that money is the most satisfactory liquid store of value. So money enables both current buying and selling with immediate cash payments and current and present transactions to be discharged in future. Gold coins will last many hundreds of years.
Barter is the direct exchange of goods for goods. Money provides a means of exchanging goods and services throughout an economy that does not depend on bartering, making it easier to buy and sell. One coin should not be superior to another. This system had been used in ancient since the time of the. The of a country consists of and and, depending on the particular definition used, one or more types of the balances held in , , and other types of.
Three functions of money are 1. For example, say a man wants to sell his house and buy some land, some cows, and some cloth. Precious metals like gold and silver are always acceptable. Money takes various forms, such as coins, banknotes and the money that is held in savings and checking accounts. Money serves four basic functions: 1. Money as a Unit of Account or Measure of Value: Money serves as a unit of account or a measure of value. After a while bartering proved to be inefficient, inconvenient, and unsuccessful, and the evolution of money began.
Money is historically an establishing a , but nearly all contemporary money systems are based on. However, if the rate of cannot keep up with the growth of the economy, gold becomes relatively more valuable, and prices denominated in gold will drop, causing deflation. The already widespread methods of and then 's printing by the 11th century was the impetus for the massive production of paper money in premodern China. Money is demanded for three motives: a Transaction Motive; b Precautionary Motive; and c Speculative Motive. Early forms of money were silver and gold coins. By spending it, we can get any commodity in future. By imposing taxes, states create demand for the currency they issue.