Commerce > Economics Class 12 > Functions of Money and role of money - Economics
Functions of Money and role of money - Economics Video Lecture - Economics Class 12 - Commerce
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FAQs on Functions of Money and role of money - Economics Video Lecture - Economics Class 12 - Commerce
| 1. What are the functions of money in economics? |  |
Ans. Money serves several functions in economics. Firstly, it acts as a medium of exchange, facilitating the buying and selling of goods and services. Secondly, it serves as a unit of account, providing a common measure of value for different goods and services. Thirdly, money functions as a store of value, allowing individuals to save their wealth for future use. Lastly, money also acts as a standard of deferred payment, enabling loans and credit transactions.
| 2. How does money play a role in the economy? | |
Ans. Money plays a crucial role in the economy as it enables economic transactions and facilitates economic activities. It provides a means for individuals to exchange goods and services, allowing specialization and division of labor. Money also acts as a measure of value, making it easier to compare the worth of different goods and services. Additionally, money promotes economic growth by providing a medium for investment and savings.
| 3. What is the significance of money in the modern economy? | |
Ans. Money holds significant importance in the modern economy. It promotes economic efficiency by reducing the transaction costs associated with bartering. Money also facilitates economic stability and monetary policy implementation by acting as a tool for central banks to control inflation and interest rates. Furthermore, money allows for the accumulation and transfer of wealth, enabling economic growth and development.
| 4. How does money impact consumer behavior and spending patterns? | |
Ans. Money has a significant impact on consumer behavior and spending patterns. The availability of money influences the purchasing power of individuals, affecting their ability to buy goods and services. Changes in the money supply can also lead to inflation or deflation, which can impact consumer prices and, consequently, consumer behavior. Additionally, consumer confidence in the stability of money and the economy can influence their propensity to spend or save.
| 5. What are the potential drawbacks or risks associated with the use of money in the economy? | |
Ans. While money serves various functions in the economy, there are also potential drawbacks and risks associated with its use. One such risk is the possibility of inflation, where an increase in the money supply leads to a general rise in prices. Counterfeiting is another risk, as the use of counterfeit money can undermine the trust and integrity of the monetary system. Additionally, excessive reliance on money can lead to financial instability, as seen in cases of hyperinflation or economic crises.
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