Question

Explain the contingent functions of money.

Discuss any two contingent functions of money.

Explain how money can help producers employ various factors of production.

Explain the following function of money.

Maximisation of utility.

State one contingent function of money.

Answer 1

Contingent Functions of Money are as follows:

1. Maximization of Utility: Money helps the consumers in maximizing their satisfaction while purchasing various goods and services. A consumer will be able to maximize his satisfaction by estimating prices of goods with their manual utilities.
2. Maximisation of Profit: Money helps the producer in deciding quantity of different factors of production to be employed. Every producer wants profit maximization while employing various factors of production. A producer to maximise his profit equates marginal productivity (expressed in value terms) of a factor with its price or rate of remuneration is expressed in terms of money.
3. Distribution of National Income: Money facilitates the distribution of national income among people. Total output of a country is jointly produced by different factors of production. So this will have to be distributed among them. Money helps in the distribution of national product through the system of factor prices, e.g., wage, rent, interest and profit, which are expressed in money terms.
4. Basis of Credit: In the modern economic system, credit plays a key role and money constitutes the basis of credit. For example, credit instruments like cheques, drafts, bills of exchange, etc. cannot be used without the existence of money.