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Question
Explain with reasons, whether you agree or disagree with the following statement
Money also performs certain contingent functions.
Solution
Yes, we agree that money performs some contingent functions. The following are the various contingent functions that money performs.
- Facilitates credit- Money facilitates the functioning of credit instruments such as cheques, promissory notes, bills of exchange etc.
- Facilitates distribution of income- Factor payments can be made easily in the form of monetary remunerations such as wages, rent, interest and profit.
- Maximises consumers’ and producers’ satisfaction- Since all goods, services and factors of production are valued in terms of money, it is possible for the consumers to maximise his/her satisfaction by equalising marginal utilities of goods and for a producer to maximise production by equalising marginal productivities of the different factors.
- Liquidity- Money is the most liquid of all assets and wealth. Gold, silver, land, cheques etc. are not as liquid as money. If a need arises, these assets have to be converted into money, but on the other hand, money need not to be converted into any other form as it is readily acceptable.
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