Importance of Money & Role of money in functioning of an economy

Importance of Money; Role of money; Role of money in smooth functioning of an economy

Importance of Money:
Modern economy is a money economy where all exchanges take place through money. Satisfaction of human wants is possible with a help of money. The intensity of want and the attainment of utility can be measured easily with the help of money. All economic activities relating to production, distribution, consumption etc can be motivated by money. Savings and investments can be made in the form of capital information. Thus, money is important in the dynamic society for everything.

Role of money in smooth functioning of an economy:
Money helps in the smooth functioning of the economy in the following ways:

  • Introduction of money eliminates all the inconveniences of barter system.
  • It provides purchasing power, to buy goods and services and factors of production directly.
  • Remuneration to all factors of production can be made in terms of money.
  • By using money as a unit of accounts, debits and credits of transaction can be maintained in an economy.
  • The performance of the country can be measured in terms of money.
  • Money acts as a standard of deferred payment, so future transactions can be easily made.
  • National Income can be distributed in terms of money.
  • Trade and Commerce are facilitated by money.
  • It facilitates specialization and division of labor.
  • Savings and investment can be made in the form of money.


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