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Definitions
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Dictionary > Definitions > Economy > Money
Money
Definition
Money is any token or other object that functions as a medium of exchange that is socially and legally accepted in payment for goods and services and in settlement of debts. Money also serves as a standard of value for measuring the relative worth of diff
Description
Money includes both currency, particularly the many circulating currencies
with legal tender status, and various forms of financial deposit accounts, such
as demand deposits, savings accounts, and certificates of deposit. In modern
economies, currency is the smallest component of the money supply.
Money is not the same as real value, the latter being the basic element in
economics. Money is central to the study of economics and forms its most cogent
link to finance. The absence of money causes a market economy to be inefficient
because it requires a coincidence of wants between traders, and an agreement
that these needs are of equal value, before a barter exchange can occur. The use
of money is thought to encourage trade and the division of labour.
Money is generally considered to have the following characteristics, which are
summed up in a rhyme found in older economics textbooks and a primer: "Money is
a matter of functions four, a medium, a measure, a standard, a store." That is,
money functions as a medium of exchange, a unit of account, and a store of value
There have been many historical arguments regarding the combination of money's
functions, some arguing that they need more separation and that a single unit is
insufficient to deal with them all. One of these arguments is that the role of
money as a medium of exchange is in conflict with its role as a store of value:
its role as a store of value requires holding it without spending, whereas its
role as a medium of exchange requires it to circulate.Financial capital' is a
more general and inclusive term for all liquid instruments, whether or not they
are a uniformly recognized tender.
Liquidity describes how easily an item can be traded for another item, or into
the common currency within an economy. Money is the most liquid asset because it
is universally recognised and accepted as the common currency. In this way,
money gives consumers the freedom to trade goods and services easily without
having to barter.
Liquid financial instruments are easily tradable and have low transaction costs.
There should be no � or minimal � spread between the prices to buy and sell the
instrument being used as money.
Author
Aziz
Author Email
azizjipsbd@yahoo.com
References
Definitions to be consulted