The role of money in economic system

role of money in modern economy ppt

As far as the growth theory is concerned, the supply and demand for money have been largely ignored until recently, yet all but the very simplest short-run income and price level determination models have a money market included in them.

Monetisation will bring this sector in contact with the financial institutions such as commercial and cooperative banks and insurance companies. This raises the demand for money to finance the increased transactions brought about by the expanded level of economic activity. Business in modern times is based on credit to a large extent.

functions of money ppt

However, the currency of the European Union lost its credibility because of Eurozone crisis, and the restoration magic that worked in the US economy has not taken place in the Eurozone till now.

According to Prof. In other words, it provides no measure of value.

Role of money in economy pdf

Metals have this advantage. It is a factor around which the theory of investment is constructed and investment expenditure is one of the key determinants of income and employment. However, this extreme view about the unimportance of money as such is no longer believed. Money as a store preserves value through time and space. Gradually, precious metals such as gold and silver replaced other metals such as iron, copper, and bronze as money. It forms the basis for credit transactions. Money may not even be the best store of value because it depreciates with inflation. Even paper money is ideal in this regard. The modern economy cannot work without money.

The United States has not undergone any major political crisis. Banks create credit not out of thin air but with the help of money.

functions of money pdf
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Role of Money in Economic Development of Developing Countries