Value of Money

Like other commodities, value of money is measured in terms of general goods and services. It means the amount of goods and services which one unit of money can purchase is known as its 'purchase power'. If prices are low, money will buy much of other things and has high value. If prices are high it will buy little of other things and is of low value. Thus the value of money varies inversely with general prices.

The value of money is determined by its demand and supply, just like other commodities.

Supply of Money

The supply of money means the total quantity of money used to purchase the goods offered the sale. This does not include boarder money. Supply of money is not equivalent to total amount of coins, paper currency notes and bank deposits. Each price of money may not be used several times in a given period in the purchase of goods and thus add to the supply of money. The supply of money is all the money in circulation at the time.


    


Demand of Money

The demand of money consists of all the goods offered for sale. Every seller of goods is a buyer of money.

Appreciation and Depreciation in Value of Money

The value of money is subject to fluctuation. Rise in the value of money is known as appreciation and a fall is known as depreciation. The reason of increase and decrease of money is the variation of demand and supply of money.

Inflation and Deflation of Currency

The term 'inflation' is applied to the condition when the currency is over-issued. The currency mostly consists of inconvertible paper money and debased coins which are deliberately issued by the Government in order to tide over financial difficulty. The supply of money is increased to such an extent that it exceeds the requirement of the country. As a result, the prices rise.

Deflation means contraction of money to such an extent that it falls short of demand for the country. It is resorted by the government to increase the purchase power of money. Deflation depresses the general price level. This results in unemployment.




Next Chapters

Estimating Procedure
Costing
Difference between Estimating & Costing
Depreciation & Obsolescence
Material Cost Calculation
Calculating Labor Cost
Direct and Indirect Expenses
Component Cost
Machine Shop Estimating
Forging and Forging Types
Starting an Organization
Welding Cost Estimation
Jigs and Fixtures
Forecasting
Qualities of an Entrepreneur
Starting Small Scale Industries
Budget and Budgetary Control
Supply & Law of Supply
Exchange and Barter Exchange
Classification of Market
Money and Types of Money
Trade Cycle
Break Even Analysis
Financial Management
Profit
Pricing
 


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