Answer to Question #189428 in Economics for Natie Nel

Question

Elaborate on any five concepts or names associated with money on where it is used.

Answer 1

The measure of value

It is expressed in the fact that money measures the cost of a specific service, product, setting a specific price. This is what ensures the convenience of the functioning of the market economy.

Two sub-functions can be distinguished here - money for expressing and measuring value.

This is due to the fact that it is impossible to establish the price of a product or service without comparing them with any standard, a model for which a generally recognized cost is established. The most striking example of this function is the time when gold and silver were considered a general equivalent, and the price of a service or good represented a specific mass of gold or silver.

The price could be expressed in terms of the amount of labor and time spent, but this method is impossible since the labor costs for a specific time have large differences. Another option is to express the value of one product in terms of the value of another. This method is used in barter exchange systems. But in this case, since there are several types of goods on the market, it turns out that one good can have several different prices, which will depend on what kind of goods it is exchanged for.

At the macroeconomic level, through the measure of value, one can also compare the volumes of GDP, financial resources, investments of different countries, which, in turn, allows regulating, changing, and improving economic life.

Means of circulation

The first function only sets the price and does not include the sale of the item. In this case, monetary resources are intermediaries for the exchange of goods, which takes place in 2 stages:

selling goods for money;

buying a new product with this money.

It turns out that another manufacturer cannot sell the product, as a result, all this leads to economic crises.

Instrument of payment

Money as a means of payment performs the function of paying off debt obligations. This method of application arose when the sale of goods on credit appeared, that is, the opportunity to pay not immediately, but in the future.

This function seems to be similar to the previous one, however, they have significant differences. Money as a means of payment differs from those that act as a means of circulation because a certain time passes between the moment of the sale in debt and payment of the debt. During this period, the creditor and the debtor, the value of money, and other conditions may change. As a result, the cost of payment may be unequal to the value of the goods. This, for example, happens with inflation.

As a means of payment and circulation, they are transferred between economic entities, which means they are involved in monetary circulation. That is, when it comes to the total mass of money in circulation, their quantity in 2 functions is simultaneously included.

Since the market economy is now a widely developed system, monetary resources, as a means of payment, are used in many areas:

Payments to financial funds.

Donation.

Property insurance.

Remuneration of workers by enterprises.

Payments on mutual debt obligations and more.

Value accumulator

Money can go out of circulation for a while. Thus, money accumulations appear, which can be represented by the monetary resources of citizens or entire economic entities. Savings are mainly formed when incomes are higher than expenses, or when large expenses are planned in the future. Their most mobile part is cash.

As a store of value, they greatly help develop credit relations. After all, temporarily unused money can be provided as a loan to citizens or organizations. This allows for more competent and productive use of economic resources and increases productivity.

World money

Here finance is included in the global turnover and provides economic ties between different countries.

The group of researchers believes that world money cannot be considered as a separate function. Why? In fact, they perform everything that was described earlier, that is, a whole set of tasks, and are the result of their synthesis. This point of view would be correct if all national money were subject to free exchange. But usually the monetary resources of the state function only within it. When entering the world economic market, other currencies are required. Therefore, world money can and should be considered as a separate function.