significance of money market in modern economy
Answers
Money occupies a central position in our modern economy. Money is everywhere and for everything in the modern economic life. Money has become the religion of the day in the ordinary business of life. Every branch of economic activity in a money economy is basically different from what it would have been in a barter economy. Money has created a far reaching effect on all facets of economic activities; consumption, production, exchange and distribution, as also on public finance and economic welfare.
Money and Consumption
Money enables a consumer to generalize his purchasing power. It gives him command over a wide variety of goods. It enables him to canalize his purchasing power and get what he wants. In fact, it is money through its immense purchasing power that makes a consumer sovereign in a capitalist economy. The consumer’s sovereignty can be expressed through money spending. Money provides freedom of choice of consumption. Money and the price mechanism help a consumer to allocate his income over goods in such a way so that he derives maximum satisfaction from his consumption.
Money and Exchange.
Money overcomes the difficulties of a barter system of exchange. In a money economy; it is simple matter to ascertain the market price in terms of monetary units. Money facilitates trade by serving as a medium of exchange. Thus, rapid exchange in a modern economic system is possible because of money. Money is the basis of the pricing mechanism through which economic activities are adjusted.
Money and Public Finance
In a modern economy, government plays a very important role. Government receives income in the form of taxes, fees, prices of public utility services, etc and uses this income for administrative and developmental purposes. But the great magnitude of public revenues and public expenditure in a modern state would become impossible without money. Further, fiscal devices like public borrowing and deficit financing for economic development can be adopted only in a monetary economy.
In recent times, the fiscal policy of a government acquired very great importance in economic life, since economic activities can be regulated through budgetary operations that are facilitated by the institutions of money.
Money, thus, plays an important role in the shaping of the economic life of a country. The growth of money economy has made the growth of economic liberalism and, hence, of the present day free enterprise or capitalists system possible. In fact the pattern of economic life has changed in accordance with the changes in the economic progress. For better performance of an economy, a country’s monetary system should be operated in such a manner as to maintain high levels of employment and avoidance of business fluctuations.