Answer the following question.
What are the contingent functions of money?
What are the contingent functions of money?
Money refers to a
common medium of exchange that is issued under the law of government and acts
as a legal tender for the whole country. The contingent functions of money includes the following :-
1. Distribution of national income: Money helps in optimum distribution of national income among different factors of production by generating factor incomes like rent, interest, wage and profit.
2. Basis of credit creation: Credit creation by commercial banks is not possible without money. Money as a store of value has encouraged savings by people in the form of demand deposits in the banks which are used by the commercial banks to create credit.
3. Maximization of satisfaction: Money helps the consumers and producers in maximizing their satisfaction by measuring the value of everything in terms of money. A consumer derives maximum satisfaction by equating the price (expressed in terms of money) of each commodity with its marginal utility (satisfaction). Similarly, a producer maximizes his satisfaction (profit) by equating the marginal productivity of a factor with price of such factor.
4. Increases productivity of assets: Money increases the productivity of capital as it is the most liquid asset and can be put to alternative uses. Due to liquidity of money, capital can be easily transferred from less productive uses to more productive uses.
Money refers to a common medium of exchange that is issued under the law of government and acts as a legal tender for the whole country. The contingent functions of money includes the following :-
1. Distribution of national income: Money helps in optimum distribution of national income among different factors of production by generating factor incomes like rent, interest, wage and profit.
2. Basis of credit creation: Credit creation by commercial banks is not possible without money. Money as a store of value has encouraged savings by people in the form of demand deposits in the banks which are used by the commercial banks to create credit.
3. Maximization of satisfaction: Money helps the consumers and producers in maximizing their satisfaction by measuring the value of everything in terms of money. A consumer derives maximum satisfaction by equating the price (expressed in terms of money) of each commodity with its marginal utility (satisfaction). Similarly, a producer maximizes his satisfaction (profit) by equating the marginal productivity of a factor with price of such factor.
4. Increases productivity of assets: Money increases the productivity of capital as it is the most liquid asset and can be put to alternative uses. Due to liquidity of money, capital can be easily transferred from less productive uses to more productive uses.
