whole play a vital role in national economy. Availabilty of money at a particular point of time and the rate at which it grows over time has important implications for inflation, interest rate and economy’s overall functioning. Projected rate of economic growth Land + Lab+Capital+Entrepreneur GDP=Rent +Wage+Interest+Profit Defining Money Money- Money is what money does. Broad Approach Money- Narrow Approach- By Functions Wealth- refers to the stock of assets minus debts. Inventory of all assets holding Income- Flow of earning over some time interval
Money- is anything generally acceptable
as a medium of Exchange- Society widely accepts it to settle transactions. Are Debit cards Money? Money & instruments to Withdraw money. Liquidity- how quickly and easily we convert anything into money Money and near money Functions of Money 1. Medium of Exchange General Acceptability. Primary Function Classical Economists- has only one function that is med of exch 2. Unit of Account Values of goods and services are stated in units of money Barter system- Number of price calculation was very high N.(N-1)/2 N- number of commodities 5.(5-1)/2= 10 calculations Inefficient Monetary economy- An economy that uses money as a medium of exchange. Each commodity will have a unique price tag. The medium of exchange nearly always also serves as the unit of account. 3. Store of Value Means of storing todays purchasing power to purchase something in future. Case of some goods under barter: Perishable Bulky/large in size Hoarding a variety of goods
JM Keynes- Money is an asset.
4. Standard of deffered payments Pmt that is deffered to the future. Barter system- Population was very less and Commodities exchanged were very few. Problems under barter – - Double coincidence of wants - Transaction cost- high - As population increases and number of commodities in the market increased then barter system became infeasible - Search efforts and time given Barter Vs. Monetary economy-