Dynamic Functions of Money in English....................

Contents

Dynamic Functions of Money

1. Maintaining Payment Capacity – When one borrows funds they have to be repaid on due dates for payment which liquidity has to be arranged by way of cash, bank balances, short-term receipt etc. so that payment can be made when it becomes due. This function is also carried out by money.

2. Taking Decisions. The firms and governments are able to take economic decisions on the basis of income, consumption, savings and profits. It helps the state to take decisions about its taxation and expenditure policies, deficit financing and development plans.

3. Measures Price Inflation – It is very necessary to reduce general price level for the purpose of policy strategy. This is possible by preparing wholesale or retail price indices giving proper weightage to various products with a common base period. This helps to know price movement which can be on daily, weekly, monthly and annual basis.

4. Adjustment Purpose- In order that money market and capital markets function properly in the best interest of the economy. It becomes necessary to transfer funds from one market to other for adjustment purposes which becomes possible because of money.

5. Capital Transactions – All capital transactions such as issue of shares, debentures and government securities in banks and certificates are carried out by means of money.

6. Measure of Economic Growth- It is possible to estimate Gross Domestic Product (GDP) and income at a price of a particular year which in India is done at 1999-2000 prices. It helps to measure growth of a country and helps in planning for future.