Date Posted: 7/5/2012 4:53:25 AM
Posted By: Viona Membership Level: Silver Total Points: 879
Money defined refers to an asset that is generally acceptable as a medium of exchange. It plays indispensable roles in the economy. It significantly contributes to wealth as well as socioeconomic welfare. Money eliminates the problem of barter system. Two major problems confronted people under the barter system. These problems entailed finding a person with double coincidence of wants and lack of a measure of value. Money has eliminated these problems because it is generally accepted medium of exchange and it measures value of goods and services efficiently. In addition, money has the backing of government. With the help of money, people can buy and sell any commodity in the market without facing the problem of double coincidence of goods.Money works as a factor of production and thus regarded as the fifth factor of production in addition to capital, labor, entrepreneurship and land. Even if these factors were available in plenty, withdrawal of money from the system would cause the production to collapse and thus production would substantially decline. Money serves as a factor of production thereby enabling output to diversify and increase.Money accelerates the rate of production and growth. This is in two ways: by making factor payments and by making the sale of output speedy and efficient. It is the lifeblood of an economy. An economy remains alive and working efficiently so long as money keeps circulating in the economy. If money were to be withdrawn from the circular, the production and employment system would come to a standstill in modern production.It facilitates consumer choice in the multitude of goods and services. In the absence of money, consumer’s choice will only be limited to only what he or she can offer for sale in exchange.In the monetized economy, even if a person has only one commodity or service to offer for sale then he or she can buy and consume any number of a variety of goods and services of his or her choice given the monetary resources. With the advent of money, money and credit systems have evolved. The growth of financial systems has created an efficient system of financial growth to various sectors of economy. This has helped the efficient allocation of the financial resources in the economy. On the adverse side however, money creates tremendous financial disparities in the society, which creates class conflicts. There emerges a division between the rich and the poor. Only a few amass wealth leaving the rest in absolute poverty. Moreover, it erodes moral and ethical due to money mindedness.Money is an economy asset and thus one cannot underscore its power. However, it needs regulation in order to alleviate the diversities it creates in wealth.
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