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What Is The Role Of Money In The Economy?

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Ellie Hoe Profile
Ellie Hoe answered
The purpose of economy is to circulate the flow of funds between the economic agents i.e. Households, government and industries so that country can survive and boom. Money is a standard medium of exchange which is circulated in an economy to benefit the agents involved in an economy. Shortages in funds lead to downfall of an economy and increase the cost of borrowing whereas surplus money is re-invested back for welfare of the people living in the country. The excess money gives an opportunity for an economy to invest in foreign assets or invest in profitable investments.
Pawan Ahuja Profile
Pawan Ahuja answered
In capital economy, money is the pivot around which all economic activities cluster. Money is an indicator as well as a surveyor of wealth.

Production decisions:
Production has been greatly facilitated by the introduction of money. Money makes possible the accumulation of wealth in those hands which are able to organize the production. The captain of the industry hires the various factors of production in order to meet the future demand for goods and services and pays them in term of money. If the reward was to be paid in commodity, then the exchange of goods would have been very limited and so the production on a small scale.

Production without the use of money cannot be organized on a large scale and run efficiently and economically. The decision of what, where, when and how much to produce are all guided by the amount of money offered in exchange of goods and services. The cost of production is also estimated in terms of money. The profit or loss which is the difference between the sales proceeds and the total money cost is also expressed in terms of money. With the introduction of money, the consumption can be easily postponed and the assets can be stored for the use to a future date. People can also deposit their saving in the banks which can be lent to the business firms and industrialists for further production of wealth. Anonymous

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