Money, Function, Significance & Characteristics Of Good Money

Money, Function, Significance & Characteristics Of Good Money
XI Economics Money, Function, Significance & Characteristics Of Good Money
definition of money

According to Professor Crowther

“Money is anything that is generally acceptable as a means of exchange and at the same time acts as a measure and store of value.”

According to A. Walker,

“Money is what money does.”

According D. H Robertson

“Money is everything which is widely accepted in payment for goods or in discharge of other king of business obligations.”


It helps produces in production

It is the money, which has made possible to produce goods in bulk with varieties. It helps the producers to purchase different kinds of raw material from different places. It also helps them to hire the required services of different types of labor. It guides them to combine different factors of production.

It helps consumers in consumption

Money helps the consumer in getting maximum satisfaction from their available resources. It gives them the power to make purchase of different kinds of goods according to their own choice.

It helps in distributing

Money also helps in distributing the income to different factors of production. It has made possible to work out marginal productivity of each factor of production.

It helps in expanding trade and commerce activities

Tremendous expansion of trade and commerce, activities of today is debited to money to a great extent. In fact, money has helped in removing all the defects and shortcomings of barter economy. Rice can now be freely determined of everything as well every kind of services with the help of money.

It helps in saving and investment

Saving and investment are two crucial factors responsible for the process of economic development. Money also plays important role in the investment process in the economy. It encourages people to save from their income and invest in profitable channel.

It helps in fiscal management

Money also plays a paramount role in fiscal management of a country. The importance of money lies in the fact that budgets are prepared by the governments through the allocation of money. Revenue and expenditure of different sectors are estimated through money.

Money acts as an index of growth

The economic progress of a country can be measured with the help of money. The per capital income, the reward of the factors of production, accounting of national income etc, are measured in terms of money. Money thus also serves as an index of economic growth.
Important questions with answer

Public Finance & Elements Of Public Finance

Difference Between Public Finance and Private Finance

Canons of Taxation or Principles of a good taxation System

Question 02) explain the functions of money 


Money acts as medium of exchange

It is a fundamental function of money. Money, due to this function, has overcome almost all the defects and difficulties of barter system. The thing which are in surplus are sold in the market in exchange of money and the money so obtained can freely be used to purchase the goods and tainted can freely be used to purchase the goods and services required.

Money acts as a common measure of value

Another basic function of the moneys that it serves as a common measure of value of goods and services. It, in fact, serves as a standard unit of value by which we can measure and compare the value of different goods and services.

Money acts as a store of value

Another important basic function of the money is the store of value. Under barter system, goods and animals etc. could not be stored for a longer period. Money has solved this problem. Now these things can easily be stored by way of selling them and storing their value.

Money acts as a standard of deferred

In the modern business world, credit plays a very useful role in expansion of trade activities. Goods and services are bought and sold on the promise to pay money on a certain date of future. Money, therefore, in this regard, not only serves as a medium of exchange but also a standard of deferred payment.

Money acts as a transfer of value

Money also serves the purpose of transfer of value and wealth. Such transfer can be made from on e person to another person, form on place to another and from one time to another. The transfer of value can take place in the form of currency notes, bank drafts, and travelers, cheques etc.


Money acts as an important instrument of economic policy
Money acts as a tool of monetary management
Money acts as instrument of saving and investment
Money influences the levels of income and consumption
Q3) What are the characteristics of good money?



One of the essential qualities of good money is that it should be acceptable to everyone without any hesitation in exchange for goods and services.

The essential quality can only exit if it qualifies one of the following conditions.

Intrinsic value: The material used, as money should be acceptable regarding to its intrinsic value. For example, gold and silver are considered valuable metals for they have their own commercial value.

Legal support: In case the material used as money is not costly but it should have the legal support of government of the country.


A good money should also have the quality of transferability from one place to the other with are without any depreciation. In other words, good money should have small weight but large value.


It is also one of the essential conditions of good money that it should be easily recognizable. Each and every unit of money must have such shape, volume, weight, engagement (one coins) and designs (of antes) that the people can easily differentiate it.


For anything to be accepted as a good money it is should posses the quality of divisibility. It means, if it is divided into small parts there should be no difference in its total value.


A thing used as money should be durable also and be able to retain its price and value for a long time. Anything which does not possess this essential quality cannot be used as money.


A thing used as money should be of a uniform quality and capable of standardization.


Another essential quality of goods money is that it should be fairly stable in value. If the value of money is subjected to frequent changes, it cannot serve the purpose of perfect money.


Anything to be used as good money should have the quality to be stored easily. To qualify this condition the money material should be small in volume, size and weight but command big value.

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