Role of money in the economic

And their motivation need not be a selfless one. Banks, in turn, lend these savings to businessmen for investment in capital equipment, buying of raw materials, labour, etc. Cattle, tobacco, shells, wheat, tea, salt, knives, leather, animals such as sheep, horses and oxen, and metals like iron, lead, tin, and copper have been used as money.

Hence it is important for a central bank to understand changes in money. Clients choose a bank because they trust it not to lose their money and because they expect a specific level of value added and are willing to pay fees and commissions in return. Various other powers may be ascribed to the government in a MME such as social welfare programs, protection of the populace, etc.

Changes in the value of money or prices also reflect the growth of an economy. The theoretical support for, and empirical relevance of, such an approach is still unclear. Hence both old and new models may ignore an important part of the transmission mechanism of monetary policy.

The value of money depends directly on the level of this organization. Further, money helps in the general flow of goods and services from agricultural, industrial and tertiary sectors of the economy because all these activities are performed in terms of money.

Official short-term interest rates play the leading role as the instrument of policy, with money behind the scenes.

Functions of Money in the Modern Economic System

The vast majority of this trading takes place between financial intermediaries, the aim being to exploit even the slightest differences between exchange rates arbitrage.

They are based on what economists call reduced-form equations, the coefficients of which will be complex functions of the true structural parameters of the economy, as well as expectations of future policy responses by the monetary authorities.

Money has a powerful catalytic effect on development arising from its capacity to relate to, integrate with and energize virtually every other activity in society. A social infrastructure was also necessary to support the evolution of money from a commodity into a symbol.


Rivers have been of fundamental importance in human history. The raw materials purchased, the wages paid to workers, the capital borrowed, the rent paid, the expenses on advertisements, etc.

Therefore, the river banks have attracted settlers from ancient times. Money Promotes Productivity and Economic Growth:The role of money in a market economy Speech by Peter Praet, Member of the Executive Board of the ECB, at the Bargeldsymposium organised by the Deutsche Bundesbank, Frankfurt am Main, 10 October Ladies and Gentlemen, It is a great pleasure for me to speak here today at the Bargeldsymposium of the Deutsche Bundesbank.

Functions of Money Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account.

Role of Money in Economic Development of Developing Countries

Money is of vital importance to the operation of the national and international economy. Money plays an important role in the daily life of a person whether he is a consumer, a producer, a businessman, an academician, a politician or an administrator.

An individual need not be an economics to be. Money plays a crucial role in development. Money is the product of organization. In earlier societies, land was the principal form of wealth.

The productivity of the land was the primary resource for development and that productivity depended on the organization of society for agricultural production.

Functions of Money

This authority has an economic aspect. money even in the face of countercycical central bank policy.” 2 This general argument guided the construction of an explicit model designed to emphasize the role of the public’s and the banks’ behavior in the determina-tion of the money stock, bank credit and interest rates.

2. Money in Economic Life: Money plays an important role in the shaping of the economic life in a country. Money is characteristic of nearly highly developed civilization, and we might almost say that it is necessary to such developed.5/5(1).

The Significance of Money: (Static and Dynamic Roles) | Money Download
Role of money in the economic
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