MONEY AND INFLATION — Economics STD 12 Commerce — Question
Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsMONEY AND INFLATION3 Marks
Question
Define money and explain its functions in brief.
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Answer
Money:
Money is such a thing which can be used as a means of exchange without any inconvenience or investigation regardless of time or place.
In other words anything that performs the functions of money is called money.
Functions of money:
$1.$ Money as a medium of exchange:
The most important function of money is to act as a medium of exchange and trade.
Money overcomes the limitation of the lack of ‘double coincidence of wants’ and makes exchanges easier.
For example, a farmer can get money in exchange of wheat and then from that money he can buy clothes, shoes, oil, etc.
An individual can spend money to satisfy his present demands of goods and supplies. He can also save the money to satisfy his future needs for goods and supplies.
$2.$ Money as a store of value:
Before money became the medium of exchange it was difficult to generate and save wealth. for future needs of goods and supplies.
It was not possible to keep animals as wealth because animals are living beings and they grow old and die one day. This made money the most successful means of storage of value in terms of time.
It is easy to have money as a ‘storage of value’. Moreover, it can also be used to exchange crops or any other goods and services needed presently or even in future.
Another advantage of using money is that it can be used in deferred payment. The credit system, loans, investment rates, sales-purchase methods, etc. got benefitted due these characteristics of money.
$3.$ Money as a measure of value:
Money plays an important role as a measure of value.
In Barter exchange system it became increasingly difficult to remember the exchange rates and values of each of the goods or services.
A person had to always remember how much goods or services he will get for $20 \ kg$ rice or how much cloth will he get for $1 \ kg$ ghee and so on.
This limitation was overcome by money. Money makes this problem easier by allowing the values of different goods or services to be compared and assessed against each other.
Money enables the working of the price-system. The price-system allows deciding the price of each goods and services and also makes it possible to compare the value of these goods and services with each other.
Money also allows faster decision making and exchanges.
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