INSTITUTE –University School of

Business
DEPARTMENT -Management
M.B.A
Macro Economic Theory(20-SET612)
Faculty Name : Rohit Guleria (Assistant Professor)

Lecture 3.1 DISCOVER . LEARN . EMPOWER

Money :Functions

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 • Space for
visual (size
24)

Money :Functions
Course Outcome
CO Number Title Level
Will be covered in this
CO1 the student will be able to analyse the concept of Remember
lecture
national income and theories of employment.  

CO2 The student will able to gain knowledge regarding Understand

concept and theories of consumption and  
investment

CO3 The students will able to examine some vital Understand

issues pertaining to Money. 2

CO4 The student will able to evaluate the macro Understand

environment of national and global economy.
 
MONEY
• “MONEY IS ANYTHING THAT IS REGULARLY USED IN ECONOMIC
TRANSACTIONS AND SERVES AS A MEDIUM OF EXCHANGE, A UNIT OF
ACCOUNT AND A STORE OF VALUE.” DEFINITION OF MONEY

Source : www.study.com 3
Source : www.study.com 4
Source : www.study.com
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MONEY

• Money has been defined differently by different economists.

• 1. Descriptive Definitions 2. Legal Definitions 3. General Acceptability Definitions
• (1) Descriptive definitions
• “Anything that is generally acceptable as a means of exchange and that at the same time acts
as a measure and store of value.” – Crowther in his book: An outline of money
• “Money may be defined as a means of valuation and of payment” – Coulborn
• “Money is anything that is widely used as a mean of payment and is generally acceptable in
settlement of debts.” – Cole

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MONEY

2) Legal Definitions:
“Anything which is defined by the state as money is money” – Professor Knap
Professor Hartley believes that money should be legal tender.

(3) General Acceptability Definitions:

“Money is anything which is commonly used and generally accepted as a medium of exchange
or as a standard of value.” – Kents
Money is described as “anything which is widely accepted in payment of goods or in discharge
of other kinds of business obligations,” by D.H. Robertson.
“Money is anything that is generally accepted in payment of goods and services or in the
repayment of debts.” – E. Mishkin

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ORIGIN OF MONEY

• Money has evolved through five different stages during history:

• 1. Commodity money
• 2. Metallic money
• 3. Paper money
• 4. Credit money
• 5. Electronic money
• 1. Commodity money:
• Commodity money has a value apart from its use of money.
• A large number of items such as cows, goats, sheep, rice, grains, etc were used
• However they lacked storage capability, durability transportability, divisibility, and
homogeneity.

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Source : www.study.com

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ORIGIN OF MONEY

2. Metallic money:
Coinage: gold and silver were used as coins, stamped by a competent authority.
As time passed, transportation and storage of coins became inconvenient and dangerous
3. Paper Currency:
Paper currency is made of paper and functions as a medium of exchange
Initially paper currency carried a promise that it was convertible into a fixed quantity of
precious metallic gold and silver
This promise was eliminated in 1914 in England and in 1933 in America.
Fiat money: this newspaper money which is considered legal tender because the government
says it is money. It has no backing of gold, silver or government securities

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ORIGIN OF MONEY

4. Credit money or bank money:

Bank money is the use of cheques as the medium of exchange.
Cheques have made it possible an easier to make transactions for large amounts. They are easier to
transport.
They are safe and provide receipts
Checks are not legal tender. They cannot be enforced in payments of debts
5. Electronic banking stage:
This is a modern system of transferring funds using Electronic Communications.
Payments are now made through magnetic strip cards such as bank debit cards, credit cards, telephone
cards etc.
This form of banking has reduced processing costs, lead times for payments and increasing flexibility.
These are also not considered legal tender

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Source : www.study.com
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Source : www.study.com
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PRIMARY FUNCTIONS OF MONEY

1.1. Money as a medium of Exchange

Used to pay for goods and services  Overcame double coincidence of barter system 
Introduced time efficiency of exchanging goods and services  Encouraged division of labour.
People are now specializing due to easier payment of services rendered.
. 2. Money as a unit of account  Common measure of money.  Used to compare goods in
terms money
3. Money as a standard of deferred payments  Money is useful in the purchasing goods on
credit as it is easy to borrow-and lend
4. Money as a store of value  Does not deteriorate and stores value

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SECONDARY FUNCTIONS OF MONEY

• Money has the potential to influence an economy, by influencing interest rates, price levels,
resources, etc.
• 1. Aid to specialization, production and trade
• 2. Influence on income & consumption
• 3. Money is an instrument of making loans
• 4. Money as tool of monetary management 5. Instrument of economic policy

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CONTINGENT FUNCTIONS OF MONEY

• Contingent functions are derived from primary & secondary functions

• Distribution of national income
• Basis of credit system in banks
• Measure of marginal productivity
• Liquidity of property

Source : www.study.com
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EVILS OF MONEY

• 1. It creates economic instability

• 2. It leads to over capitalization and over production
• 3. Money strengthens capitalism
• 4. Money causes trade cycle
• 5. Money creates inequality of income and wealth
• 6. Money is the main cause of corruption
• 7. Money just mobilizes the resources but does not creates it.

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References

• Textbook
• 1) Shapiro, E., Macroeconomic Analysis, Thomson Learning.
• 2) Peterson, W.C., Income, Employment and Economic Growth, W.W Norton & Co.
• 3) Mankiw, Gregory,N., Principles of Macroeconomics, Cengage.
• 4) McConnell, Brue, S.L. & Masaki S. Flynn, Economics , McGaw-Hill Education
• 5) Branson W. H., Macroeconomic Theory and Policy, Affiliated East-West Press Pvt. Ltd.
• Online Article
• https://www.intelligenteconomist.com/circular-flow-model/

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 Blackboard
Assessment Pattern

Components HT-1 HT-2 Assignment Surprise Test Business Quiz GD Forum Attendance Scaled
Marks

Max. Marks 10 10 6 4 4 4 2 40

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THANK YOU

For queries you can reach me on

Email:rohit.e13211@cumail.in