What Is The Significance And Importance Of Money In The Economy?

Money is a price mechanism. Price mechanism operates in the market system through money. It is through money that all incomes and prices are measured. The economic decision of what, where and how to produce are implemented through money. It has importance in production. Money has made producers to purchase the raw materials, combines different factors of production and makes payments to them. Money helps the producer in assessing the cost of production. It facilitates borrowing and lending, helps in calculating rates of interest and making an estimate of profit for the producer. Money helps the consumer to get maximum satisfaction from his available resources. It gives the consumer the power to make purchases of goods. It enables 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.

Money has helped in removing all the defects and shortcomings of barter economy. Prices are now freely determined with the help of money. Distribution of income to the different factors of production is made in terms of money. Money has made it possible to work out the marginal productivity of each factor of production. So this way money is serving the economy.

For general welfare of the community

It has a great role in exchanging goods and services..or barter.