Inflation and functions of money essay

Measures of Capital Functions of Money Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account. Money's most important function is as a medium of exchange to facilitate transactions.

Inflation and functions of money essay

Inflation is the general increase in the price level over a period of time. Money is something that is generally acceptable in the exchange of goods and services. The purchasing power of money decreases.

If the inflation rate is high and unanticipated, lots of problems can occur.

Inflation and functions of money essay

People can lose confidence in money as it can not continue to keep its value. Money loses its store of value function. People will tend to keep real assets like lands to retain their wealth.

Money can not serve as a medium of exchange, too because people rather use solid products like clothes or Jeans to exchange for goods than the worthless money.

Functions of Money in the Modern Economic System | Owlcation

Banks and other institutions tend not to lend money to others because the money paid back is worth less, making them lose money. Money can no longer be a standard for deferred ayment.

In this way, investment, borrowing and lending are discouraged. Businesses in need of cash to buy equipments to start up, to expand and to overcome cash flow problems can not get enough finance so they will produce less output and salary to workers.

Moreover, the prices now can not show the real value of goods and consumers can be confused about the real value of products sold. Money loses its unit of account function as well during periods of high unanticipated inflation.

Functions of Money Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account. Money loses its unit of account function as well during periods of high unanticipated inflation. On the other hand, when the inflation is low and stable (especially demand-pull inflation), it actually helps the economy and encourages money to function better. ADVERTISEMENTS: Essay on Inflation! Essay on the Meaning of Inflation: Inflation and unemployment are the two most talked-about words in the contemporary society. These two are the big problems that plague all the economies.

On the other hand, when the inflation is low and stable especially demand-pull inflationit actually helps the economy and encourages money to function better.

Price rise motivates businesses to expand output and hire more workers for higher production level. Money continues to serve as a effective medium of exchange as it circulates around the economy. Firms can benefit from low real interest rates sometimes because of inflation and are encouraged to invest and borrow from banks.

Origins of Money and of Banking

Banks are willing to lend because they can add interest rates according to current inflation rate. Money is still standard for deferred payments.

However, moneys store of value function might be affected as moneys value will fall due to inflation. Yet as long as the inflation rate is stable and xpected, people can plan in advance or save money in banks for interest rates to avoid any undesired effects.

Yet if the inflation rate is low and stable, money can function better. Money will flow smoothly in the exchange of goods at the same time Also, steadily increasing prices show that the value of products might be increasing as well because money as a unit of account Popular Essays.Money loses its unit of account function as well during periods of high unanticipated inflation.

On the other hand, when the inflation is low and stable (especially demand-pull inflation), it actually helps the economy and encourages money to function better. “Money is a matter of functions four - a medium, a measure, a standard, a store.” Thus, money is a medium of exchange, a measure of value, a store of value, and a standard of deferred payments.

Medium of exchange: The most important function of money is that it acts as a medium of exchange.

Introduction

REAL WORLD ADVICE AND MONEY MANAGEMENT for Do-It-Yourself Investors and Financial Advisors. ADVERTISEMENTS: Essay on Inflation! Essay on the Meaning of Inflation: Inflation and unemployment are the two most talked-about words in the contemporary society.

These two are the big problems that plague all the economies. Money is basically any commodity that is generally accepted in the exchange of goods and services, and when any of the above types of inflation occurs, money begins to lose some of its functions, and I shall be discussing how this happens in my following essay.

Difficulties of Barter

Uses and Abuses of Gresham's Law in the History of Money. Robert Mundell. Columbia university. August Introduction. 1. Early Expressions. 2. Faulty Renderings.

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