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7/13/21

TYPES OF MONEY

Money


The motive of holding money 



  Money is a medium of exchange; it allows people to obtain what they need to live. Bartering was one way that people exchanged goods for other goods before money was created. Like gold and other precious metals, money has worth because for most people it represents something valuable.

Money which is a medium of exchanges in the economy has being a practice for centuries from the trade by barter system to gold bond and now mint and paper note. The motive of holding money are the driving force which include: 1. Transaction motive of holding money 2.speculative motive of holding money 3.precautionary motive of holding money -The transaction motive of holding money has to do with buying and selling of goods and service in the economy at a particular time. This economic activities increase the economy in a positive way which is part of the total national income for that period of time. - The speculative motive of holding money has to with the investment part section of the economy the total money budgeted for economic investment of goods and service for the overall growth of household and the economy. Some economic theories say savings equal to investment will give us an optimal growth in the economy , in this context we can also say that investment is better than savings. It could be long term economic investment or short term economic investment. -precautionary motive of holding money deals with budget of unforeseen event that may occur e.g on case of disaster or damage to protect and save the economy from collapse. This provide the funds to meet up with any current challenges that may occur. Money works in the economy and provide economic stability for flexibility and durability of the buying of goods.   

2 It encourages business among countries through international trade, monetary economic principles and policies of government also is an institution that regulate the supply of money in the economy , either contraction or expansionary monetary policies determine the growth and development of the economy. Controlling inflation in the economy and economic depression that cause hardship for house holds and individual consumer who uses money as a form and medium of exchange. The general increase in price level is what causes inflation in the economy were by too much money chasing few goods and services the value of the money at time is low and also the purchasing power is below the quality of the product in focus. Economy depression and inflation result to stagflation in the entire money system in the economy Were gross domestic product of the country or nation is below the total national income including import and export and government expenditure. A country dependant to other nation of it goods and services will definitely in the long run into economy depression if strict measure are not taking to encourage domestic production of goods and service and flexible flow of money in the economy business cycle, this will increase the work money (concept) in the theory of money and how it work in the overall economy.

Type of money 

Fair money:

This type of money include bank note ,papar money and coins.it has the authoritative decision of the government  and is not base on the inherent value if price . The govetnment has it as a legak tender that can be use to transact businsee.

Commodity money

This type of money come in form of preciouse metal such as gold and diamond. Commodity money cannot be replace when destroyed it is one of the oldest form of money and the values is incentive in nature his like the barter system it serve as a medium of exchanges and is the earliest form of money

Representative money 

This type of money come in form of certificate ,paper money and then coins.
It has no value if it own  just like the fiat form of money  
It could be exchanged with metals that are precious because it is backed by a commodity. The precious metal which CA be gold is kept in the bank cult, it will be more comfortable to carry certificate than to go around with heavy metal Eg gold. 

fiduciary money

This type of money come in form of bank draft and cheque thus meaning trust this type of money can be given in exchange for fiat or commodity money by the bank issuer it is not recognize as a legal tender but can be use by people to collect the fait money .

Commercial bank money

This are funds that are in the checking accounts it is said to be a dept created currency by the bank ,money is created through the process known as fractional reserve banking,the banks collect such money and give to people as loan and in return collect interest on such money
Customers can access their money through the ATM, online banking, cheques or withdrawing in person .

Money


propertice of money in economics 

1. Portability 

2. Durability 

3. Stability of value

4. Limited supply 

5. Dividing 

6. Cognizability

7. Fungibility

All the types of money mention above have  the characteristics of the properties of money.

The functions of money in the economy 

1. It serves as a medium of exchange


The most important and primary functions of money is the medium of exchange by which people use in business in the buying of goods and service before the advent of money the trade by barter system was use by people were you can exchange commodities for the other but this system had it own disadvantage and it is not flexible  ,then comes money which solve the problem of double want in the batter system

2. Account of unit

This important function of money allow us to know the value attach to goods and service for example to know the values of a dollar to a soda and so on
Measuring the standard of living of a country can known by the unit of account 

3 .Store of values

It serve as a store of value an retain it worth over time because a dollar today can increase to 5 dollars tomorrow 

Money economy


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