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.
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.
The demand of money consists of all the goods offered for sale. Every seller of goods is a buyer 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.
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.
|Estimating Procedure||Difference between Estimating & Costing|
|Depreciation & Obsolescence||Calculating Labor Cost|
|Direct and Indirect Expenses||Machine Shop Estimating|
|Forging and Forging Types||Welding Cost Estimation|
|Jigs and Fixtures||Qualities of an Entrepreneur|
|Starting Small Scale Industries||Supply & Law of Supply|
|Exchange and Barter Exchange||Money and Types of Money|
|Trade Cycle||Financial Management|
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