Question

What is the importance of money in the national economy of

Pakistan?
Answer
Introduction:
Money
In barter age there was no money. The trade used to take place without any money.
Goods were exchange for goods and there was a problem of double coincidence of
wants. As the society developed people found that they need some commodities more
than others and their wants are of varying importance. This increased the importance of
some commodities and goods. Gradually these commodities attained the status of
money in that era. People used to value these higher than others. So we can say that
different goods or commodities became money in that era.
Man found gold, silver and other precious metals. The people were in the
habit of keeping these gold coins, and bars with goldsmiths. The receipts issued by
goldsmiths become medium of exchange over time. Money does not only play the role
of medium of exchange but also help to measure the value of goods and to store
the value of the goods into money.

Definition:
Money
Functional definition of money:
“It is defined in terms of its functions. Accordingly, money is that which money
does. It is based on the three functions of money in which first is medium of exchange,
second is units of account and third is store of value. ”

Legal definition of money:

“Money that has a legal sanction by the government behind it is called legal
tender or legal tender money.”
OR

“Money is what the law says it is also called legal tender money.”
 Importance of money in the National economy of
Pakistan

Following are the importance of money from the point of view these points in the
national economy of Pakistan.

 Money & production

 Money & consumption pattern
 Distribution of wealth and money
 Money & public finance/ government
 Money & banking
 Money & the economic activity
 Money & the international trade
 Satisfaction and Optimal Use of
Resources
 Borrowing and Debt Servicing
 Calculation of Macro Economic variables

(1)
Money & production:
Starting with the production, the producer produces because of profit motive
which is expressed completely in terms of money and also production cost is evaluate in
the term of money. The money has made it possible to evaluate the human effort and
thus to determine its wage or reward, (factors of production) land, labor, capital and
organization etc.

(2)
Money & consumption pattern:
In capitalistic society, consumer is a king, free to make choice about what he
should consume. The consumption depends on income. Both the income and
consumption expenditures are stated in terms of money. For the purpose to buy
anything and acquire anything and the payment of anything.
 (3)
Distribution of wealth and money:
The distribution of wealth is a comparison of the wealth of various members or
groups in a society. The distribution of wealth differs from the income distribution in
that it looks at the economic distribution of ownership of the assets in a society, rather
than the current income of members of that society. And these incomes and assets
measure through the money.The distribution of NI is also based on money. Government
with the help of money can distribute resources among various poor sectors of the
economy.

(4)
Money & public finance/ government:
Money has greatly helped the accounting of public finance, tax revenues and
government revenues of Pakistan etc. Money is perhaps the basic need of the
governments besides lot of others. Governments need money to perform all such
functions as maintenance of law and order.

(5)
Money & banking:
Money is the basis for the functions and operations of banks and financial
institutions. Through the money the commercial banks of Pakistan receive deposits from
the people and then advance it to the debtors and accounts payable. And bank gives
and takes interest in the form of money from their customers.

(6)
Money & the economic activity:
In the economy today money performs several functions. Money serves as a
standard of value in which other values are measured. Money is a store of value, that is,
the means in which wealth can be held. It acts as a standard for deferred payments.
And it also the play role as medium of exchange. Through the money, government do
expenditures for the purpose of development and non-development.

(7)
Money & the international trade:
Money has also greatly expanded the international trade. The difference between
costs of production among various parts of world can be calculated as we have got
money to value scarce as well as abundant resources. And Pakistan do international
trade import and export is made through the money.

(8)
Satisfaction and Optimal Use of Resources:
Money is important as it helps in determining the standard of satisfaction and
optimal allocation of resources.

(9)
Borrowing and Debt Servicing:
The loan that you take form your friend and the borrowing of the government
form IMF, all these are possible only because there is money.

(10)
Calculation of Macro Economic variables:
Money has mad it possible to calculate and determine different macro-economic
variables such as GDP, GNP, NI, etc.

Conclusion:
“Money no doubt has contributed very effectively and generously towards
modern economy. However at the same time it has produced certain world wide ‘ills’
and ‘bads’. As like inflation and corruption etc. But money play a prominent role in
economy as we discus above. It remove the major problem of barter system and
perform function of easy medium of exchange and store the high value in short form of
money.”