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FUNCTION OF MONEY

FUNCTION OF MONEY. Primary fun. MEDIUM OF EXCHANGE MEASURE OF VALUE. SECONDARY FUN. STANDARD OF DEFERRED PAYMENTS STORE OF VALUE TRANSFER OF VALUE . CONTINGENT FUN. BASIS OF CREDIT CREATION MAXIMUM SATISFACTION DISTRIBUTION OF NATIONAL INCOME BEARER OF OPTION GUARANTEE OF SOLVENCY

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FUNCTION OF MONEY

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  1. FUNCTION OF MONEY

  2. Primary fun • MEDIUM OF EXCHANGE • MEASURE OF VALUE

  3. SECONDARY FUN. • STANDARD OF DEFERRED PAYMENTS • STORE OF VALUE • TRANSFER OF VALUE

  4. CONTINGENT FUN. • BASIS OF CREDIT CREATION • MAXIMUM SATISFACTION • DISTRIBUTION OF NATIONAL INCOME • BEARER OF OPTION • GUARANTEE OF SOLVENCY • INCREASE IN LIQUIDITY OF CAPITAL

  5. THEORIES OF MONEY • QUANTITY THEORY OF MONEY • 1. Fisher ‘EQUATION OR TRANSACTION EQUATION • 2. CASH BALANCE OR CAMBRIDGE EQUATION

  6. FISHER EQUATION • ASSUMPTIONS • CONSTANT VALUE OF V AND V’ • FULL EMP. • CONSTANT TRADE TRANSATION • LONG PERIOD • PRICE LEVEL IS PASSIVE FACTOR • M IS ACTIVE FACTOR

  7. FISHER EQUATION • Purchasing power of money - 1911 • QM AND PRICE OF GOOD- DIRECT RELATION • QM AND VALUE OF MONEY - INDIRECT • DM=SM M’= CREDIT MONEY • PT=MV+M’V’ • P=MV+M’V’ • T

  8. M=F(P)

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