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Money & Its Role In Economic Growth & Prosperity

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Money plays an important role in the economy. Money performs the important functions of solving the different problems of the country. Following points explain that money is the pivot around which the whole science of economics clusters.

Role Of Money In The Modern Economy

Money plays an important role in the economy. Money performs the important functions of solving the different problems of the country. Following points explain that money is the pivot around which the whole science of economics clusters.

Removes The Difficulties Of Barter:

Money has removed e difficulties of barter. Money has overcome the difficulty of barter by acting as medium of exchange, a standard of value, store of value and as a standard of deferred payments.

Importance For Consumer:

Money is very important for consumer. The consumer gets his remuneration in the form of money. Money he can get any commodity and service he likes at any.

Importance For Producer:

Money is also important for producers. Producer can purchase raw material with money. He can pay wages to worker in money. He can pay all other expenses of production n terms of money. He can sell his production in money. The producer can easily calculate the cost of production and his profit with the help of money.

Importance For Government:

Money possesses much importance for government. Government needs money to maintain law enforcer and to provide health, education and transport facilities in the country. It would be impossible for modern government to carry on its functions without the use of money.

Public Finance:

Public finance deals with government income expenditure

Public finance deals with government income expenditure. Money facilitates the imposing and collection of taxes, fines and prices of services rendered by the government to the people. Tax is a powerful tool of social justice.

Economic Growth:

Money is the most effective tool of economic growth. The whole economic system is based on money. In every phase of economics whether it is concerned with production or consumption or exchange or distribution, the role of money is of supreme importance.

Growth Of Trade:

In modem economy the rewards of four factors of production

Money helps the growth of national and international trade. The use of money as a medium of exchange and transfer of value has made it possible to sell goods and services within and outside the country. Money has facilitated not only internal trade but also international trade.

Calculation Of National Income:

In modem economy the rewards of four factors of production (land, labor, capital and organization) are paid in money. A landlord is paid tent, worker gets his wages, capitalistic his interest and entrepreneur his profit in money. The total reward of factors of production is equal to national income, thus money makes easy the calculation of national income.

Indicator Of Economic Growth:

The whole economic science is based on money. All economic motives and activities are measured in terms of money. Money is an indicator of economic growth. The various indicators of economic growth are national income, per capita income and economic welfare. These are measured in terms of money.

Capital Formation:

Money facilitates capital formation. The small savings of people are deposited into bank to earn interest. Bank lends these savings to businessmen, who make investment in their business. This makes capital mobile and leads to capital formation.

Job Opportunities:

The job opportunities depend upon the economic activities. Capital formation increases the economic activities. Money facilitates the capital formation. Thus, money increases the job opportunities in the country.


Basis of credit Money serves as a basis of credit. Money is at the back of all credit. A commercial bank cannot create credit without having sufficient money in reserve. Money helps to establish a sound and strong credit system in the economy.

Industrial Progress:

Money facilitates the industrial progress. Money provides life to new business concerns. Promotion of industrial units and establishment of stock exchanges are possible through money.

Large Scale Production:

Money helps in large scale production. All inputs like raw materials, labor, machinery, etc. are provided with money and all output is sold in exchange of money. Thus, money facilitates the large scale production.

Resources Mobility:

Money increases the mobility of financial resources. Money facilitates the transfer of funds from one sector to another. Mobility of financial resources help the growth in all sectors if the economy.



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