Importance of Money

Importance of money:

1. Importance in consumption

Money is the medium of exchange and it also represents the general purchasing power. A consumer can buy anything with the money he/she has at anytime convenient to him/her. It helps to maximize the peoples' satisfaction.

2. Importance in production

A producer has to engage and hire various factors of production in order to produce goods and services. In return , the producer has to pay factor rewards to the factors of production in terms of rent, wage, interest and profit in the form of money .

3.Importance in Exchange

Money facilitates exchange of goods and services. It avoids all the difficulties of barter system. Both internal and external trading process have become easy because of money.

4. Importance in Distribution

Money plays an important role in the process of distribution of national income among the factors of production in the form of rent ,wages , interest and profit. All these factor income are measured in terms of money.

5. Importance in Public finance

Public finance is the branch of economics which deals with the income and expenditure of the government. Government receives the income by the ways of taxes , fines , etc and makes payment of wages , salaries , interest, etc in the form of money.

6. Importance in Capital Formation

Capital formation refers to the addition in capital stock in a country such as equipment , tools , factory, and physical infrastructure. Money facilitates saving and saving is the source of capital. Banking and financial institutions become mediator in this process.

7. Importance in the measurement of National Income

National income refers to the money value of all the final goods and services in an economy in a year. The measurement of national income is not possible without the use of money .

8. Importance in the price Mechanism
Price mechanism refers to the system where the forces of demand and supply determines the price of goods and services. Price mechanism operates in the market through the money because all the income and prices are measured in terms of money.