ASSIGNMENT NO1

ROLE OF MONEY IN ECONOMY

SUBMITTED TO: SIR NADEEM SUBMITTED BY: SABA AZHAR DEPARTMENT: B.B.A (5) FINANCE DATE: 17 OCTOBER, 200

MONEY
Money is difficult to define even though we know it when we see it. The best way to define money is by the functions it performs, which is good since the functions have remained constant even though the actual "things" used as money have changed. Above all else, money is a medium of exchange. On a more practical level, in a very real sense we can think of money as the oil keeping the economic engine running smoothly to produce the goods and services we consume.

ECONOMY
conomy is the production and distribution of goods and services filling the needs or wants of people (directly or indirectly).!

THE ROLE OF MONEY IN MODERN ECONOMY:

The role of money in modern economy lies in the functions it performs. Money plays many significant roles in modern economy. !or its role in modern economy, money is considered by some economists as "one of the most fundamental of all man#s inventions$. !or example, in the opinion of %rowther, " very branch of knowledge has its fundamental discovery. &n mechanics it is wheel, in science the fire, in politics the vote' similarly in economics money is the essential invention on which all the rest of economic inventions are based.$ Money was, infects, not invented by one man, one community or even one nation in a year or decade. The history of money over three(four thousand years reveals that the modern money was evolved itself in the course of human civili)ation. &rrespective of whether money was evolved or invented, its role in modern economy is well comparable with fire and wheel.

THE ROLE OF MONEY IN THE SOCIETY

&n some ways money was a good thing' in other ways it was a necessary evil or a distraction from what was really important. On the one hand, & saw evidence that money was good. &t#s not hard to recogni)e that money bestows certain advantages. *ome problems can be solved by money very easily. Money can provide food, clothing, shelter, heat, transportation, education, technology, entertainment, medicine, and so on. +iven the way our society currently functions, if you have a lot of money, you have a lot of solutions. Money surely won#t solve all your problems, and it can create new problems of its own, but on balance it#s safe to say that money is a powerful problem(solving tool. ,othing can take the place of money in the area in which money works.

On the other hand, there are some things don#t like about money. & don#t like that it#s used as a gatekeeper for certain "privileges$ like proper medical care, healthy food, or decent educational resources. & also don#t like how it induces people to behave dishonorably to attain it. A"#$%&$'() *+ ,*%(- .% &(/, *+ )*0.$1 ,($)2/(,(%& )-)&(, The current hard(currency monetary system offers to the society the following advantages R.'3& *+ 42-.%' (#(/-&3.%' *% )(11: Money offers the possibility to ac.uire everything that people are ready to abandon there ownership right. This is the best .uality of money and the counterpart is that there is no guarantee that everything on sell can be sold /unemployment01. R.'3& *+ )$#.%':

*elling with profit increases the personal freedom toward the society. This is the conse.uence of the interest rate system. ach profit can be put on saving with interest rate. !rom saving, the individual has the guarantee of regular revenue and escapes from the constraint of work. The reality between this is that most of the work is made by the working e.uipment /probably more than 23 4 if you compare the productivity between an artisan tribal society to a modern industriali)ed society 1. *aving means buying "work e.uipment". *o, the interest rate is in reality the revenue of the "work e.uipment". The current monetary system guarantees that the person who makes the investment and so is the cause the production of the "work e.uipment" receives the revenue of this work e.uipment. /($1.)&.0 3.(/$/03.)$&.*% *+ &3( )*0.(&-:

This last point is the less considered but it is one of the ma5or roles of money as it permits the person to ac.uire a position in the society according to their reali)ation and not the talk. One the biggest cause of failure in social system is the concentration of responsibility and talent to the political world instead of entrepreneur#s world. This last point should be kept in consideration as it is easy to conceive better social measurement system than money D.)$"#$%&$'() *+ ,*%(- .% &(/, *+ )*0.$1 ,($)2/(,(%& )-)&(, &n this world everything has both good and bad aspects together. *imilarly, money also has bad effects .!ollowing are the some disadvantages of money in economy. C*//25&.*%

%orruption takes place due to money in the society. This indirectly affects all the sectors or departments of the economy.

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6ue to money dissatisfaction prevails in the society. 6ue to this some use wrong ways to get money and some lose their confidence .and specially it happens in children and their mind distracted from their childhood. P*6(/

7eople use their power in wrong way and force people to obey them.*till there are lots of problems which arise due to money.

ROLE OF MONEY IN ECONOMY

M*%(- 3$) $072./(" .,,(%)( ).'%.+.0$%0( .% $ ,*"(/% (0*%*,-. M*%(- .% 5/*"20&.*%: Money has made possible to produce large number of goods with different varieties. &t helps the procedures to purchase the raw materials, combine different factors of production and make payments to them. Money helps the producers in assessing the cost of production. &f facilities borrowing and leading, helps in calculating rates of interest and making an estimate of profit for the producer. M*%(- $%" 0*%)2,5&.*%- Money helps the consumer to get maximum satisfaction from his available resources. &f gives the consumer the power to make the purchase of goods. &f enable, him to draw up a budget. The consumer, with the help of money, can arrange all his expenditure in such a manner that he gets maximum satisfaction. M*%(- $%" &/$"(: Money has helped in removing all the defects and shortcoming of barter economy. 7rices are now freely determined with the help of money. 6ue to money, there is significant flow of internal and foreign trade in economy. M*%(- $%" ".)&/.42&.*%: 6istribution of income to the different factors of production is made in terms of money. Money has made possible to work out the marginal productivity of each factor of production. The allocation is thus greatly solved through the use of money. C*,5(&.&.*% 4(&6((% ".++(/(%& +./,): leads to increased efficiency, as firms do whatever is necessary8including laying off workers8to lower their costs' &nnovations, !oreign investment, new technical and social skillsand great motivation are seen in society.

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1. 6istorted investment priorities, as wealth gets directed into what will earn the largest profit and not into what most people really need /so public health, public education, and even dikes for periodically swollen rivers receive little attention1' 2. 9orsening exploitation of workers, since the harder, faster, and longer people work 85ust as the less they get paid8the more profit is earned by their employer 8. Overproduction of goods, since workers as a class is never paid enough to buy back. 9. +rowing unemployment /machines and raw materials are available, but using them to satisfy the needs of the people who don:t have the money to pay for what could be made would not make profits for those who own the machines and raw materials 8and in a market economy profits are what matters1' 5. +rowing social and economic ine.uality /the rich get richer and everyone else gets poorer, many absolutely and the rest in relation to the rapidly growing wealth of the rich1' :. 9ith such a gap between the rich and the poor, egalitarian social relations become impossible. 7. Those with the most money also begin to exercise a disproportional political influence, which they use to help themselves make still more money' . &ncrease in corruption in all sectors of society, which further increases the power of those with a lot of money and puts those without the money to bribe officials at a severe disadvantage' ;. &ncrease in all kinds of economic crimes, with people trying to ac.uire money illegally when legal means are not available. 10. ;educed social benefits and welfare. 11. The same market experiences develop a set of anti(social attitudes and emotions /people become egotistical, concerned only with themselves. "Me first", "anything for money", "winning in competition no matter what the human costs" become what drives them in all areas of life. They also become very anxious and economically insecure, afraid of losing their 5ob, their home, their sale, etc.' and they worry about money all the time. &n this situation, feelings as well as ideas of cooperation and mutual concern are seriously weakened, where they don:t disappear altogether, for in a market economy it is against one:s personal interest to cooperate with others1' 12. 9ith people:s thoughts and emotions effected in these ways by their life in a market economy, it becomes very difficult for the government, any government, to give them a true picture of the country:s problems Think of a modern money economy as comprised of two related subsystems. One creates wealth. &t consists of factories, homes, farms, stores, transportation and communications facilities, the natural productive systems of the planet, and people going to work in factories, hospitals, schools, stores, restaurants, publishing houses, and elsewhere to produce the goods and services that sustain us. The other creates and distributes money as a convenient mechanism for allocating wealth. &n a healthy economy the money system serves as dutiful servant of wealth creation, allocating real capital to productive investment and rewarding those who do productive work in relation to their contribution.

&n a healthy economy, money is not the dominant value, nor is it the sole or even dominant medium of exchange. &ndeed, one of the most important indicators of economic health is the presence of an active economy of affection and reciprocity in which people do a great many useful things for one another with no expectation of financial gain. *uch voluntary sharing creates and maintains the social fabric of trust and mutual caring of which the social capital of any healthy family, community, or society is comprised. *ignificance and importance of money is not hidden from us. ,o one can deny its importance in this world. &t is true that money is not everything but there are many necessities of life that can not be getting without money. The needs of a human being are physical as well as spiritual. The physical needs are like food, residence, medicine etc. it is difficult even impossible for a man to live without these necessities of life. ach and every basic physical need of a man re.uires money to be fulfilled. <esides these a human being also re.uires some other luxuries of life. <ut as a man can live without luxuries but not without basic needs. =owever money plays a big role in the life of man. <ut there are generally different classes of people in this world' one class is blessed with all the luxuries of life so, they have no worry about money. This class of people can:t define the importance of money. Only those who have to work hard to earn, can understand the importance of money in their lives. *ome people spend their whole lives to earn money 5ust for food, and they even don:t have residence in their whole life because they have not sufficient money.