The role of money in economic system

Preconditions for market society These general considerations throw into relief the nature of the economic problems that must be resolved in a system of market coordination.

Markets cater to national culture as much as national culture mutates to conform to the discipline of profit and loss. Thus, market-based rewards lead to the efficiency of the productive system and thereby maximize the total income available for distribution.

Improvement in Balance of Payments Industrialization changes the pattern of foreign trade in the country. Some economists argue that the money multiplier is a meaningless concept, because its relevance would require that the money supply be exogenousi. Barter is a system of trading without the use of money.

The CBN is empowered to issue stabilization securities with banks at given interest rate designed to reduce commercial banks excess cash holding and their credit expansion. Irving Fisherin his quantity theory of money, opine that, like other classical writers the short-run monetary control was dictated by interest rates which were sticky but in the long-run the demand of influence was real cash balance.

Although the question is answered in part by explaining that the rich countries have experienced industrialization and the poor ones have not, the question remains why some have experienced industrialization and others have not.

This measure is aimed at ensuring that priority is accorded the growth sectors of Agriculture, manufacturing enterprises, solid minerals and manufacturing industry in the allocation of credit with a view to stimulate growth in the non-oil sector.

And the effective desire of the consumers at large is revealed to the producers through the price mechanism. Money is a liquid asset which can be stored and storing of money implies savings, and savings are kept in bank deposits to earn interest on them. Contact Author Source Industrialization plays a vital role in the economic development of underdeveloped countries.

The accumulation of capital had come to be recognized as the driving engine of the system. Further, money helps in the general flow of goods and services from agricultural, industrial and tertiary sectors of the economy because all these activities are performed in terms of money.

What is the Role of Money in a Capitalist Economy?

For whom shall goods and services be produced? Money tends to release the latent resources of the economy into productive channels. The means of production in this economy are owned and exploited by the private sector.

Role of Money in Economic Development of Developing Countries

Monetary policy is a major economic stabilization weapon, which involves measures designed to regulate and control the volume, cost and direction of money and credits in the economy to achieve objectives, which can change from time depending on the economic fortune of a particular country.

Money has become the measuring rod of values and welfare in the economic life of a modern man. This kind of policy reduces or increases the supply of short term government debt in the hands of banks and the non-bank public, lowering or raising interest rates.

Sets a limit to the amount especially of foreign currencies an individual or organization can deposit into a bank account. And price is nothing but value expressed in terms of money.

Excerpt from website Please visit site for more information: In its dynamic role, money plays an important part in the life of every citizen and in the economic system as a whole. These voluntary savings stimulate economic growth. The ability of putting the economy in a steady state of excess demand as long as aggregate supply of goods do not grow as quickly as aggregate demand, as a result of supply in-elasticities and presence of irrelevant rules and rigidities in the structure of productive sectors.

Since interest rate is regarded as part of the operating cost of production, excess reverses for lending would run-out and even faster than commodity price thereby leading to a rise in the cost of production.

Money is at the back of social prestige and political power. The achievement of this objectives has been necessitated by the phenomenal growth of international liquidity.Economic development is generally believed to be dependent on the growth of real factors such as capital accumulation, technological progress, and increase in quality and skills of labour force.

This view does not adequately stress the role of money in the process of economic development. The economic development of any country is dependent on its financial system -- its banks, stock markets, insurance sector, pension funds and a government-run central bank with authority, or at least influence, over currency and interest rates.

Industrialization plays a vital role in the economic development of underdeveloped countries. As the historical record shows, the developed countries of the world broke the vicious cycle of poverty by industrializing, rather than focusing on agricultural or the production of national resources.

Money plays an important role in the shaping of the economic life in a country. Money is characteristic of nearly highly developed civilization, and we might almost say that it is necessary to such developed.5/5(1). Inflation definition, a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation).

See more. According to Aderibigbe (), monetary policy is a transmission mechanism which operates policy through the effects of interest of credit on economic agents which respond to different yields of various financial assets, level of aggregates demand, exchange rate overall economic activities.

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The role of money in economic system
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