Primary functions price of a trouser is ?

100
the
of
money are as
Medium of Exchange: The most
tollows:
shirtis 7500, then the rate of and the pm.
importal trouser and a shi will be
unction of money is that it serves as a Under the barter system on
om of
Koharousetnge be
t
medium of exchange. This function or
oney important that the definition
is so
ratiosexchange among
among
andnd the
unusually large since valuo servi
s exchange,
of
hasises particularly this
money emphasises of lue
particularly t ) expressed
has to be each
in
tunction of money. Money
commanas commodity. Use of moneyterms coms
general
purchasing power to purchase gooa
has simplified
as
this problem. B
ery a r
and services which people want. Money
alue ofall goods, and
s
generally and widely accepted
medium with which most of the
as the
of account, the
services inexpresy
process of
purchases
or sates are made. Goods are exchanged for
13.4.2 Secondary Functions
exchange is smy
money while selling goods; and money can
be used for
buying any good that we need/ n this category, we include
Ihe use of
money a common medium o
as money which are hOse hunetons
derived fron
exchange has facilitated the exchange greatly. functions. The
are the seconda
following are
The
exchange has become convenient as well functions of money:
as
simple. It has removed the inconvenience 1. Standard of Deferrec
and
inefficiency which characterise the
barter system. It has serves as a standard of deferred Payments
avoided the
of time and resources involved in thewastage
barter
CActing as a standard of
deferred h
means that a
exchange, and has eliminated the
need forin payment to be
double coincidence_of wants needed future can be stated in made
money teterms
barter. Thus,
money has promoted efficiency
is an extension of
the medium of
in exchange. Moreover, use of functionot money. Here again, m exh
also money has used as a medium of
promoted efficiency in time the payment is exchange, but s
making it possible to exploit production oy
the gains from of spread over a peiw
specialisation and division of labour. time. Thus, as soon as
2. Measure of Value: as a medium exchange and
of money is
The second as a
function of money is that it acts as important value, it is almost unit t
a
common inevitably used
unit in terms of which all future as t
measure
as
of value' or 'unit of account", Just payments are expressed.
or
delerm
we use kilogram in measuring the
of a weight )na modern economy, a large numbgi
commodity, similarly for measuring the
value of a commodity, we take money transactions involve payments in fulure. F
unit of account. Since money is generally as a example, interest, rent, salaries, pensiors
acceptable, it serves as a standard unit of loans,insurance premia, are the transacias
measurement in terms of which the values which involve _such futur_payment
of all goods and services are 3 expressed in money terms. The sesu
measured and why they
expressed. When we express the value ot are
expressed in money te
commodityin terms of money, it is knowna 1s that
money has the quality of genera
as price. Price is nothing but the units of acceptability and it can be expressed
money, say rupees, for which a unit of a definite and standardised units. Loas
commodity 15 exchanged or sold. interest, rent, wages, etc. expressed m u
The use of money as a measure of are not
uncommon, but expressing thes*
value terms of commodities is
has simplified the
problem measuring the
of likely to be
exchange values of various commodities in the inconvenient and indefinite. Thus, when
market. Since the values of all commodities are lendR10,000 for a year, you know the deu
expressed in terms of money, it becomes easy to amount you would be getting backafterOn
determine the rate of exchange between them year. But if you lend a certain quan
by rice tor a_year, you may not get pL
comparing their market prices. For example, if
of
the same virtue and quality afterd
 of
o f money
m o r
has facilitated arious
as consumers, producers, etc. in arrivig
consumption,
volving payments in future. to
u s e

rasactieon
hus,
economic decisions relating functions
has becane
became aa
convenient bridge production, etc. The main contingent
l o e y
p r e s e n t
and the
nd the future of money are as given below:
the
alue: Money also serves as a store/ 1. Maximisation of Utility:
A rational(
wtw
maximise his utility
Store o fVal

ie,people
,can
keepP their wealth consumer wants to
lue,
o lv a l u e f money In the barter system, (or satisfaction) while purchasing_various
in
As explained
inh dities were used by the people 800ds and serviices.
ic
for future use. But there were 3, a consumer will b eable
to
t os o r e

ealth
w e a l t h ,

cnapter
if the ratios.o
disadvantages
in storing wealth in maximise his total utility commodities mUx
many
t h e form o f ds and servicessuch_as marginal utilities of different
ratio of those goods.
hable
nature certain goods, cost of
of
areequal to the price utilities,
alue in the form of t o r equalising the marginal
Storing of
perish.
etc.
ge
these difficulties. ( Money an importantrole because
ey
has
solved
money plays commodities are expressed
most economical nd convenient prices of all
is t h e
wealth. It is true that there in terms of money.
w
Nay of of storing Factor Inputs: Every
such as bonds, shares and 2. Employment of
otherassets producer aims at
maximisation of his
are

etc, which also serve as store of

debentures,
compete money with in this profits employing various tactors
while
value, and they
regard. But money
regard. But is considered a better
of production. A profit-maximising
marginal
of value particula
in one respect. entrepreneur will equate
value terms) of a
productivity (expressed in
ore
a pertectly liquid asset, i.e., it is (
Money is of with its price (rate of
remuneration).
readily and generally
acceptable means
tactor of remuneration such_as (3)
payment. Holding
ot money m e a n s holding Since the rates
in money terms,
which can be wage rate are expressed
ofgeneral purchasing power or services at any it is money which helps the producer
used to purchase goods arrive at decisions with regard
to the
Money allows us to store purchasing
time.
to
number of units of a factor of production
power which can be used at any
time in
services, tobe employed.
future topurchase goods and 3. Distribution of National
Income: Use
including other assets.
of money has facilitated the distribution
Money also serves as al
3. Transfer of Value:
of national income among various
convenient mode of the transfer of value., factors of production. Production is the 2
Thisfunction of money arises from the ) outcome of combination and collective
generaLacceptability of money as a medium efforts of various factors of production.
ofexchange. Money helps us to transfer 3)
When- Contribution of these factors of production
Value from one person to another. to the production of goods and services
we buy a pen for 20 from the shopkeeper,
is rewarded not in terms of goods and
are thereby transferring value toof the services, but in money terms,
pkeeper by paying him 720 (price the 4. Basis of Credit System: Credit plays a
P. Similarly, money is a quick and efficient U crucial role in the modern credit system.
theans of transferring value from one place
In fact, commercial and business activities U
another. We can sell a house in Delhi in are highly dependent upon the credit
Change for money and can use the same a country. It is money which
Oney in buying a house in Kolkata.Thus, system of
provides the basis of the entire credit
money is of great help in transferring the
vaue system. Without the existence of money
easily,qufcktyanc eficientty- important credit instruments like cheques,
13.43 Contingent Functions bills of exchange, etc. cannot be used since

gent
t assist
functions refer to the role of money
these credit increments are claims over
money. Money is at the back of all credit.
E Various economic entities such