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How has currency helped in our economic activities?
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Answers
Economic development is generally believed to be dependent on the growth of real factors such as capital accumulation, technological progress, and increase in quality and skills of labour force. This view does not adequately stress the role of money in the process of economic development.
It is said that money is a mere veil and intrinsically unimportant. What matters is the real goods and productive factors which money buys. However, this extreme view about the unimportance of money as such is no longer believed. Not only is money an important factor without which modern complex economic organisation is impossible, but it is also an important factor for promoting economic development. We discuss below the importance of money in the process of economic development.
Money Promotes Productivity and Economic Growth:
Barter system was full of difficulties of exchanging goods and services between individuals. In the absence of easy exchange of goods and services the barter system worked as an obstacle to the division of labour and specialisation among individuals which is an important factor for increasing productivity and economic growth. Further, the process of economic growth leads to the expansion of production of goods and services and consequential rise in
Answer:
Money plays no less significant role in a mixed and a developing economy. A mixed economy is characterized by the prevalence of public sector and an equally important private sector which plays varying degrees of role. In India, public sector plays a more dynamic and important role in the planned economic growth. The public sector in India has been given an important place in different Five-Year Plans of development.Prices and money, therefore, play an important part in a mixed and developing economy in determining the volume of output and employment in the private sector, as it is solely guided by the profit expectations calculated in terms of money. Further, in a developing and expanding economy, which has adopted ‘Mixed Economy’ as the pattern of development, more and more money is needed for the rapid monetisation of the non-monetised sector of the economy.
In the rural areas, where it was used primarily as a store of value to fulfill the desire for high liquidity of the people and was kept in the form of gold till now, it assumes a more active and dynamic role by serving as a standard of deferred payments, a unit of account, a measure of value and a medium of payment. In a developing mixed economy (like India), the public sector is affected by the use of money partly because goods and materials have to be purchased from the private sector at rising prices, thereby raising the cost of production of various productive units in the public sector.
Again, if the rate of interest shows a tendency to rise on account of inadequate supply of money (funds), the public sector may have to pay more on loans borrowed from the public and the burden of the public debt may be increased. Thus, the role of money in a developing and mixed economy is more complex, for its true and real nature is not revealed during transition and, therefore, lot of control is needed so as to avoid its evil effects without effecting the tempo of development.
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