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Karnataka Class 12 Commerce Economics Definition And Functions Of Money Complete Notes

Karnataka Class 12 Commerce Economics Definition And Functions Of Money : Karnatak University (Kannada: ಕರ್ನಾಟಕ ವಿಶ್ವವಿದ್ಯಾಲಯ) is a state university located in the city of Dharwad in the state of Karnataka in India. It was established in October 1949, and officially inaugurated in March 1950. The campus spans 750 acres (3 km²). D. C. Pavate was the first official vice-chancellor from 1954 to 1967. The rapid development of the institution is credited to him.

Karnataka Class 12 Commerce Economics Definition And Functions Of Money Complete Notes

Karnataka Class 12 Commerce Economics Definition And Functions Of Money : Economics is a discipline that can help us answer these questions. Economics can actually be defined a few different ways: it’s the study of scarcity, the study of how people use resources, or the study of decision-making. Economics often involves topics like wealth, finance, recessions, and banking, leading to the misconception that economics is all about money and the stock market. Actually, it’s a much broader discipline that helps us understand historical trends, interpret today’s headlines, and make predictions for coming decades.

Karnataka Class 12 Commerce Economics Definition And Functions Of Money Complete Notes

Karnataka Class 12 Commerce Economics Definition And Functions Of Money : We provides here Karnataka Class 12 Commerce Economics Definition And Functions Of Money : in PDF Format and here we gave direct download links for Karnataka Class 12 Commerce Economics Definition And Functions Of Money  pdf format. Download Karnataka Class 12 Commerce Economics Definition And Functions Of Money  Complete Notes here and read well.

Karnataka Class 12 Commerce Economics Definition And Functions Of Money Complete Notes

Karnataka Class 12 Commerce Economics Definition And Functions Of Money :  Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered as money.

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Money is historically an emergent market phenomenon establishing a commodity money, but nearly all contemporary money systems are based on fiat money.[4] Fiat money, like any check or note of debt, is without use value as a physical commodity. It derives its value by being declared by a government to be legal tender; that is, it must be accepted as a form of payment within the boundaries of the country, for “all debts, public and private”.

The money supply of a country consists of currency (banknotes and coins) and, depending on the particular definition used, one or more types of bank money (the balances held in checking accounts, savings accounts, and other types of bank accounts). Bank money, which consists only of records (mostly computerized in modern banking), forms by far the largest part of broad money in developed countries.

Download here Karnataka Class 12 Commerce Economics Definition And Functions Of Money Complete Notes In PDF Format 

Karnataka Class 12 Commerce Economics Definition And Functions Of Money Complete Notes

Karnataka Class 12 Commerce Economics Definition And Functions Of Money :  Money is a concept which we all understand but which is difficult to define in exact terms. Money is anything serving as a medium of exchange. Most definitions of money take ‘functions of money’ as their starting point. ‘Money is that which money does.’ According to Prof. Walker, ‘Money is as money does.’

This means that the term money should be used to include anything which performs the functions of money, viz., medium of exchange, measure of value, unit of account, etc. Since general acceptability is the fundamental characteristic of money, therefore, money may be defined as ‘anything which is generally acceptable by the people in exchange of goods and services or in repayment of debts.’

 Functions of Money:

In general terms, the main function of money in an economic system is “to facilitate the exchange of goods and services and help in carrying out trade smoothly.” Its basic characteristic is general acceptability. Functions of money are reflected in the following well- known couplet:

“Money is a matter of functions four A medium, a measure, a standard, a store.”

Thus conventionally money performs the following four main functions, each of which overcomes one or the other difficulty of barter. Medium of exchange and measure of value are primary functions because they are of prime Importance whereas standard of deferred payment and store of value are called secondary functions because they are derived from primary functions.

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1. Money as the Medium of Exchange:

Money came into use to remove the inconveniences of barter as money has separated the act of purchase from sale. Medium of exchange is the basic or primary function of money. People exchange goods and services through the medium of money. Money acts as a medium of exchange or as a medium of payments. Money by itself has no utility (except perhaps to the miser). It is only an intermediary.

The use of money facilitates exchange, exchange promotes specialisation Increases productivity and efficiency A good monetary system is, therefore, of immense utility to human society. Money is also called a bearer of options or generalised purchasing power because it provides freedom of choice to buy things he wants most from those who offer best bargain.

2. Money as a Unit of Account or Measure of Value:

Money serves as a unit of account or a measure of value. Money is the measuring rod, i.e., it is the units in terms of which the values of other goods and services are measured in money terms and expressed accordingly Different goods produced in the country are measured in different units like cloth m metres, milk in litres and sugar in kilograms.

Without a common unit, exchange of goods becomes very difficult Values of all goods and services can be expressed easily in a single unit called money Again without a measure of value, there can be no pricing process. Without a pricing process organised marketing and production is not possible. Thus, the use of money as a measure of value is the basis of specialised production.

The measuring rod of money is also indispensable to all forms of economic planning. Consumers compare the values of alternative purchases m terms of money Producers also compare the values of alternative purchases m terms of money. Producers compare the relative costliness of the factors of production in terms of money and also plan their output on the basis of the money yield. It is, therefore, highly important that the value of money should be stable.

3. Money as the Standard of Deferred Payments:

Deferred payments are payments which are made some time in the future. Debts are usually expressed in terms of the money of account. Loans are taken and repaid in terms of money.

The use of money as the standard of deterred or delayed payments immensely simplifies borrowing and lending operations because money generally maintains a constant value through time. Thus, money facilitates the formation of capital markets and the work of financial intermediaries like Stock Exchange, Investment Trust and Banks. Money is the link which connects the values of today with those of the future.

4. Money as a Store of Value:

Wealth can be stored in terms of money for future. It serves as a store value of goods in liquid form. By spending it, we can get any commodity in future. Keynes places great emphasis on this function of money. Holding money is equivalent to keeping a reserve of liquid assets because it can be easily converted into other things.

People therefore normally wish to keep a part of their wealth in the form of money because savings in terms of goods is very difficult. This desire is known as liquidity preference. Clearly money is the best form of store of value. Wheat or any other product which will command a value cannot be stored for a long period.

Another Function ‘Liquidity of Money’ is added these days. Money is perfectly liquid. Liquidity means convertibility into cash. Thus, the ability to convert an asset into money quickly and without loss of value is called liquidity of asset. Modern economists are laying stress on liquidity of money.

Since, by definition, money is the most generally accepted commodity, it is also the most liquid of all resources. Possession of money enables one to get hold of almost any commodity in any place and money never locks a buyer. It is this peculiarity which distinguishes money from all other commodities. A preference for liquidity is preference for money.

Money, thus, acts as common medium of exchange, a common measure of value, as standard of deferred payments and a store of value.

Contingent Functions:

Money also performs certain contingent or incidental functions, according to Prof. David Kinley. They are:

(i) Money as the Most Liquid of all Liquid Assets:

Money is the most liquid of all liquid assets in which wealth is held. Individuals and firms may hold wealth in infinitely varied forms. “They may, for example, choose between holding wealth in currency, demand deposits, time deposits, savings, bonds, Treasury Bills, short-term government securities, long-term government securities, debentures, preference shares, ordinary shares, stocks of consumer goods, and productive equipment.” All these are liquid forms of wealth which can be converted into money, and vice-versa.

(ii) Basis of the Credit System:

Money is the basis of the credit system. Business transactions are either in cash or on credit. Credit economises the use of money. But money is at the back of all credit. A commercial bank cannot create credit without having sufficient money in reserve. The credit instruments drawn by businessmen have always cash guarantee supported by their bankers.

(iii) Equaliser of Marginal Utilities and Productivities:

Money acts as an equaliser of marginal utilities for the consumer. The main aim of a consumer is to maximise his satisfaction by spending a given sum of money on various goods which he wants to purchase. Since prices of goods indicate their marginal utilities and are expressed in money, money helps in equalising the marginal utilities of various goods. This happens when the ratios of the marginal utilities and prices of the various goods are equal. Similarly, money helps in equalising the marginal productivities of the various factors. The main aim of the producer is to maximise his profits. For this, he equalises the marginal productivity of each factor with its price. The price of each factor is nothing but the money he receives for his work.

(iv) Measurement of National Income:

It was not possible to measure the national income under the barter system. Money helps in measuring national income. This is done when the various goods and services produced in a country are assessed in money terms.

(v) Distribution of National Income:

Money also helps in the distribution of national income. Rewards of factors of production in the form of wages, rent, interest and profit are determined and paid in terms of money.

4. Other Functions:

Money also performs such functions which affect the decisions of consumers and governments.

(i) Helpful in making decisions:

Money is a means of store of value and the consumer meets his daily requirements on the basis of money held by him. If the consumer has a scooter and in the near future he needs a car, he can buy a car by selling his scooter and money accumulated by him. In this way, money helps in taking decisions.

(ii) Money as a Basis of Adjustment:

To carry on trade in a proper manner, the adjustment between money market and capital market is done through money. Similarly, adjustments in foreign exchange are also made through money. Further, international payments of various types are also adjusted and made through money.

Karnataka Class 12 Commerce Economics Definition And Functions Of Money Complete Notes

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