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Importance of Money

Significance of Money in an Exchange Economy

Money plays important economic role in all societies. It renders invaluable economic services without which the development of modern industrialized societies would hardly be possible. It influences and facilitates all economic activities in the field of consumption, production, exchange, distribution and public finance.

Significance of Money in Consumption

The producer gets money in payment for the goods he produces or for the services he renders. It can be exchange at any time for any goods or services. The consumer does not spend all the income that he earns on current consumption. Portion of his income in money would be saved for this he needs later for a ‘rainy day’ and unanticipated further consumption requirements. Money comes to his help. He can hold part of his income in money which can be very easily exchange for things he needs. Furthermore, consumer would be able to spend his income on combinations of goods and services which are most preferable to him. With the help of money, he can easily equalize the marginal utilities of different commodities to derive the maximum satisfaction with his limited resources.

Significance of Money in production

The use of money is indispensable to the individual producer in modern societies. It helps him in many ways such as, purchasing raw material, borrowing capital, and advertising finished products and in combining the various factor of production.

Significance of Money of Money

Money facilitates the exchange process (i.e., trade). We have examined in detail the inconveniences the people had not encountered under the barter system of economic. It was a great hindrance in the way of the development of trade and commerce. The introduction of money has removed all these barriers, and these barriers, and has stimulated national international commerce.

Significance of Money in National Income

Money is the commodity in the form of which rent, wages, interest and profit are determined. Without money, the equitable distribution of national income among the different factors of production would indeed bar rendered very difficult. Monterey, in fact, serves the purpose of a, means of adjustment among the shares that go to the different factors of production.