The importance of money and credit to an economy

Role of Money in Economic Development of Developing Countries

If supply increases, price will fall; if supply falls, price will rise. Money possesses much significance for the consumer. Since gold has always been far scarcer and also in greater demand than silver, it has always commanded a higher price, and tends to be money in larger transactions, while silver has been used in smaller exchanges.

A second problem is one of indivisibilities. There are banks, financial institutions, stock exchanges, produce exchanges, international financial institutions, etc.

Discuss the Importance of Credit in Detail

They were also divisible, and could be sliced into thin segments without losing their pro rata value. It is this response by supply to changes in expected future demand that gives us the familiar forward-sloping, or rising supply curves of the economics textbooks.

Money is the most liquid asset because it is universally recognised and accepted as the common currency. In this framework, new money can be created to increase the level of investment without much adverse effect on prices.

We constantly make decisions about what to consume and how to invest. However, this extreme view about the unimportance of money as such is no longer believed.

The egg man is buying fish not for its own sake, but instead to use it as an indispensable way of obtaining shoes. Gold coins were used for large purchases, payment of the military and backing of state activities.

Money is of immense importance to the government. Paper money from different countries At around the same time in the medieval Islamic worlda vigorous monetary economy was created during the 7th—12th centuries on the basis of the expanding levels of circulation of a stable high-value currency the dinar.

How debasement profits the State can be seen from a hypothetical case: This leaves an unsold surplus of coffee, coffee sitting on the shelves that cannot be sold because no one will buy it.

Money facilitates both national and international trade. Fiat money Gold coins are an example of legal tender that are traded for their intrinsic value, rather than their face value.

The Importance of Credit Cards

At a price higher than the intersection, then, supply is greater than demand, and market forces will then impel a lowering of price until the unsold surplus is eliminated, and supply and demand are equilibrated. In the first place, individuals do not pick the medium of exchange out of thin air.

Graphically, the entire demand curve for B will shift downward and to the left. We discuss below the importance of money in the process of economic development.

Some of the tools used to control the money supply include: Even so, the surge in mutual fund sales over the last ten years has significantly increased the number of people who own stocks indirectly, and that has intensified their interest in the economy, financial markets, and corporate profits.

It acts as a standard for deferred payments. For these reasons, paper currency was held in suspicion and hostility in Europe and America.The control of the amount of money in the economy is known as monetary policy.

Monetary policy is the process by which a government, central bank, credit cards, and traditional currency), including terrorism financing, tax evasion, and evading of international sanctions.

Chapter I THE IMPORTANCE OF FINANCE AND CREDIT IN THE ECONOMY Nature and Scope of Business The word "business" means the state of being busy. Business means,'the whole complex field of commerce and industry, the. If we could not deny the importance of money in business, then we can also never deny the importance of credit in business.

Since the supply of money is the lifeblood of a borrowing economy, there are two sources which meet the capital requirements of. Paying with cash or credit for a big-ticket item is also an investment decision.

So are taking out a personal loan and deciding whether to put money aside in a savings account, money-market fund, or certificate of deposit.

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From meager beginnings in the s, the credit card market has exploded over the years, thanks in large part to the computerization of society. Credit cards revolutionized consumer spending habits and changed the face of business. In today’s economy, credit cards represent an important part of.

In the economy today money performs several functions. Money serves as a standard of value in which other values are measured.

Money is a store of value, that is, the means in which wealth can be held.

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The importance of money and credit to an economy
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