Question

In what way does money improve productivity? name the three toles of money?

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Answer 1

When people want to earn more money for the work, they increase increase their income, the best approch it can be done is by improving the productivity. For example: As a medium of exchange it moves from hand to hand. The wages is paid to labourers, rent is paid to the land lord, interest is paid to the capitalist and profit is earned by the entrepreneur. Therefore money creates further wealth and hence enhances the productivity

The three roles played by money.

1) Store of value: Money plays the role of the most liquid asset i.e. measures how easily assets can be spent to buy products and services. Money’s value can be retained over time and is a convenient way to store wealth.

2) Unit of account: Money acts as the common standard for measurement of the relative worth of goods and service.

3) Medium of exchange: People have requirements and wants that they cannot produce themselves. Thus the money can be used for buying and selling of products and services. If money doesn't exist goods would have to be exchanged through the process of barter system. Money mediates trade and makes markets more effective