what is static and dynamic function of money?
Answers
importance to an economy due to its static and dynamic roles. Its static role emerges from its static or traditional functions. In its dynamic role, money plays an important part in the life of every citizen and in the economic system as a whole.
✨Static Role of Money:
In its static role, the importance of money lies in removing the difficulties of barter in the following ways:
(i) By serving as a medium of exchange, money removes the need for double coincidence of wants and the inconveniences and difficulties associated with barter.
(ii) By acting as a unit of account, money becomes a comes a common measure of value. The use о money as a standard of value eliminates the necessity of quoting the price of apples in terms of organes, the price of organes in terms of nuts, and so on.
(iii) Money acts as a standard of deferred payments. Under barter, it was easy to take loans in goats or grains but difficult to make repayments in such perishable articles in the future. Money has simplified both taking and repayment of loans because the unit of account is durable.
(iv) By acting as a store of value, money removes the problem of storing of commodities under barter.
(v) Under barter, it was difficult to transfer value in the form of animals, grains, etc. from one place to another. Money removes this difficulty of barter by facilitating the transfer of value from one place to another.
✨Dynamic Role of Money:
In its dynamic role, money plays an important part in the daily life of a person whether he is a consumer, a producer, a businessman, an academician, a politician or an administrator.
(1) To the Consumer:
Money possesses much significance for the consumer. The consumer receives his income in the form of money rather than in goods and services.
(2) To the Producer:
Money is of equal importance to the producer. He keeps his account of the values of inputs and outputs in money. The raw materials purchased, the wages paid to workers, the capital borrowed, the rent paid, the expenses on advertisements, etc.
(3) In Specialisation and Divisions of Labour:
Money plays an important role in large scale specialisation and division of labour in modern production. Money helps the capitalist today wages to a large number of worker engaged in specialised jobs on the basis of division of labour.
(4) As the Basis of Credit:
The entire modern business is based on credit and credit is based on money. All monetary transactions consist of cheques, drafts, bills of exchange etc. These are credit instruments which are not money.
(5) As a Means to capital Formation:
By transforming savings into investment, money acts as a means to capital formation. Money is a liquid asset which can be stored and storing of money implies savings, and savings are kept in bank deposits to earn interest on them.
(6) As an Index of Economic Growth:
Money is also an index of economic growth. The various indicators of growth are national income, per capita income and economic welfare.
(7) In the Distribution and Calculation of Income:
The rewards to the various factors of production in a modern economy are paid in money. A worker gets his wages, capitalist his interest, a landlord his rent, and an entrepreneur his profit.
(8) In National and International Trade:
Money facilitates both national and international trade. The use of money as a medium of exchange, as a store of value and as a transfer of value has made it possible to sell commodities not only within a country but also internationally.
(9) In Solving the Central Problems of an Economy:
Money helps in solving the central problems of an economy; what to produce, for whom to produce, how to produce and in what quantities.
(10) To the Government:
Money is of immense importance to the government. Money facilitates the buying and collection of taxes, fines, fees and prices of services rendered by the government to the people.
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Answer:
Money exists as anything that functions as a medium of exchange. Other functions of money are to act as a unit of statement and as a store of value.
Explanation:
Money, in easy words, exists as a medium of exchange. It exists instrumental in the exchange of goods and/or services.
Uusually, the Central Bank or Government of a country develops and allocates money. Also named cash, this exists a legal tender and hence there exists a legal compulsion on citizens to receive it.
Functions of Money
There exist numerous static and dynamic functions of money as follows:
Static Functions of Money
These functions exist:
- A medium of Exchange –money plays an important role in the exchange. It constructs the exchange procedure smooth and suitable.
- A measure of Value -The value of a product or service exists selected based on the money required for its possession. This assists in creating the exchange a mutually beneficial activity.
- The Standard of Deferred Payments– Money plays an important part in lending and borrowing. Money is carried as a loan and refunded after a time interval.
- Store of Value – You can keep the purchasing power of money and keep a component of it for future use – monetary conservations. You can use your present earnings for current consumption as well as future consumption via savings.
Dynamic Functions of Money:
These functions exist:
- Money can activate idle resources and set them into productive tracks.
- Hence, it helps in increasing output, and occupation, and also gains statuses.
- Further, it assists in transforming savings into investments.
- With the invention of new money governments of trendy economies can consume more than what they attain.
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