Money: definition of basic concept of money

                     Definition of money

Definition of money can be classified as follows on the basis of their nature.

Definition based on nature of money:-

1. Descriptive or functional definition:-

According to crowther ,  money is anything that is commonly used and generally accepted as a means of exchange and at the same time act as a measure and store of value.

In this category, the scholar have defined the money particularly on the basis of function of money. Indirectly they describe money instead of defining it and there is a radical difference between description and definition.

So, even if definition are accepted in practice,they can't be given recognition.

2. On the basis of common acceptance:-

According to Marshall money include all those thing which is commonly used and generally accepted without doubt or special enquiry as a means of purchasing commodities or service.

3.legal definition:-

According to this principle only such a thing can be a money which has been declared legally by the government.

Definition on the basis of expansion:-

1. Definition with the narrow point of view:-the definition of Robertson is kept in this category. Robertson and his associates held that a commodity which is used to denote anything which is widely accepted in payment of good is money.

But, from that point of view only gold is the thing which is accepted in all country for replacement. So, this definition is thought as narrow.

2 .Definition with broad point of view:-

This category include the definition given by hartel wither " money is what money does".

This is descriptive as well as universal definition . According to this definition not only metal or curriencies but also cheque , bull of exchange and othro credit instrument are included in the definition of money.

3. Proper definition:-

After analysing the point of DIFFERENT economist we get to know that common acceptance is focused and measuring value is given more priority.

So, finally we can define money as 

Money is something which is accepted freely and widely as a medium of exchange,measuring value, final repayment of loan and accumulating values.

Quantity theory of money:- fishers view ( introduction, assumption, explanation and criticism).

                    Quantity theory of money

This theory gives the basic answer that how price level is determined in an economy and why does the price level of any commodity changes.

There are two approach of this theory:-

  1.classical approach.

  2.keynesian approach.

#. Classical approach:-

In classical approach there are two theory 

    (a). Fishers view.

     (b). Cambridge view.

Fishers view of quantity theory of money(transaction approach):-

Irving fisher was the first person who determined the price level and the value of money in an economy.in his theory the basic focus was given on transaction.therefore it is also known as cash transactions approach of quantity theory.

According to prof. Fisher the price level and value of money in an economy is determined by the demand for money and supply of money.

#. Assumption:-

1. There is always full employment in the economy.

2. In short run the velocity of circulation of money is constant.

3. The value of money is determined in long run.

4.money is used only for transaction.

5.in short run total transactions is constant.

6. Price level is condcons and passive factor.

7.the demand for money is proportional to the nature of transportation.

#.demand for money:-

According to classical economist like fisher stated that money is demand only for transaction purpose.

Hence, demand for money is equal to product of price level into amount of transaction.

       Demand for money= product of price and transaction (p.v)

#.supply of money:-

supply of money is the total amount of money present in an economy at particular time.

so, when the quantity of money multiplied by the velocity of circulation then the supply of money is obtained.

Supply of money=product quantity of money and velocity of circulation (m.v)

#. Determination of price level and value of money:-

According to fisher the price level is obtained at that point where demand of money is equal to supply money.

That is, 

                P.t = M.v

    

             P= M.v/t  (this is also known as fisher equation).

As, assumed above T and V both are constant.

So, p is proportional to M.

That is price level is directly proportional to quantity of money.

#. Explanation through diagram:-

In the upper part of diagram quantity of money and price level is taken which is directly proportional to each other.

In the above diagram we can see that when the quantity of money is OQ the price level is OP. But when the quantity of money became OQ1 then the price level also increases and it became Op1.

In the lower part of diagram quantity of money and value of money are taken.

Here both quantity of money and value of money both are inversely related to each other.

So, from the diagram we can clearly state the releationship between quantity of money with its price level and value of money.

#. Criticism of fisher view:-

1. According to fisher the velocity of money and transaction is constant in short run. But as we know that quantity of money changes then boyh velocity of money and transaction changes.

2. The assumption of full employment is unrealistic.

3. It is assumed that price level is passive factor. But according to Keynes price level is not passive factor but it is an active factor.

4.in this it is assumed that the price level is determined only in long run but according to prof. Keynes long run is not acceptable for economic theory because in long run we are dead.

5. According to prof. Keynes there is not a proportion relationship between price level and a quantity of money buying reality price level is affected by many factors like change in cost, change in wage rate...

6. In this theory more importance is given to supply of money instead of demand for money.

#. Conclusion:-

There are many drawbacks in this theory but it has its own importance because thia was the first theory which determines the price level and value of money.

Gresham law: intro, explanation and it's criticisms

                                      Gresham law


-. It was introduced by sir Thomas gresham.
- he was an economist, a well known business man and economic advisor of queen Elizabeth 1.

-  according to sir Thomas gresham" bad money drives out good money out of circulation".

                  Good money and bad money.

Good money:- good money means that money which is of full value and any deprivation in it does not affect its economic value.good money is usually bumetallib.in case of paper money good money is that money which is not torn or worn.


Bad money:- bad money the money which loses its internal value due to depriciation or any cause. According to bimetallism the money whose market value is less than its internal value, is called bad money.


      Applicability of Gresham law
             
              Or

Why bad money drives out good money out of circulation???

- good money drives out bad money out of circulation due to following reasons:-

1. Human nature:- it is common human nature that he discard the bad thing and accept the good things.due to this very reason when both good and bad money are availabea in economy during circulation he keeps good money with himself and allows the bad money to flow in the circulation.


2. Hoarding of money:- normally people have saving tendency. Those who are interested in keeping their saving in terms of curriencies in liquid form they always keep the good money.

3. Melting of coins:- in melting of coin sometimes it happened that small portion of certain metal like gold and silver is added in the coin to increase its market value.so, for the purpose of melting new and fresh coin is better. So, people used to keep good mobmo with himself.

4.foreign paynent:-for foreign payment new coins were saved keeping in view their weighted and purity.

       EXPLANATION OF GRESHAM LAW

IT CAN BE EXPLAINED UNDER 4 DIFFERENT CASE:-

case1 :- in case of monometallic sysren.

Case 2:-in case of bimetallism method.

Case 3:-in case of paper currency.

Case 4:-when paper currency and both coins are in circulation.



Case 1:- under monometallic system:--nder monometallic system only one standard currency is used that may be gold or silver. For small payments cheap and light curriencies  are used which may be differentiated in shape and size. When standard and full bodies coins are used then among them some of the coins remain new while some become old. Here Gresham law is applied . Old and depriciated coins are circulated in the market while standard and full bodies new coins are either horded by people or are used in foreign transaction.

CASE 2.  Bimetallism method.


Under bimetallism method standard coins of both gold and silver are used and they are legal tender money.there is a certain exchange rate which is fixed by the government.now among both the metals if the value of any metal either gold or silver become more, then the coins of very metal becomes good money as its start getting horded by the people instead of putting it back in circulation.

CASE3:- UNDER PAPER CURRENCY

paper money are in the form of paper.they can't be melted and even it is not wise to store it for future.but it's the general tendency of people to save new note.

CASE 4:-WHEN PAPER MONEY AND COINS BOTH ARE IN CIRCULATION:-

When in a country both paper money and coins are in circulation, then metal coins are considerd as  good money. Since, they can be melted in adverse situation.


LIMITATIONS OF GRESHAM LAW:-

1. when the demand for money is more than its supply.

2. When banking system is developed in a country.
3.when the public boycotts bad money.

4.when token coins are in circulation:- the value of the token coins is far less than their internal valurm. So, due to its inferior nature Gresham law is not applicable.

Balance of payment part2 (International economics)

        Introduction to the world of Economics

• Basically Economics is the study of economic activity.
• Economic activity:- those activities in which money is generated and earned.  

          Different view of economics by different economists:-

• Adam Smith view:-he is also known as father of Economics. In his famous book (an enquiry into the nature and causes of wealth of Nations) he stated that Economics is the subject of wealth.
• Marshall view:-in his well reputed book (principal of Economics) he related the economics with the study of human welfare.
• Robbins view:- in his famous book(an essay into the nature and significance of economic science) he related the subject matter of Economics with the scarcity and choice.
• Samuelson view:- his view was very clear regarding the subject matter of economics. He added one further more point that was growth of resources with scarcity and choice concept.

 That was the basic introduction of Economics, that what Economics is all about?

My first blog

       Hiiii Everyone, this is my first blog where I am going to tell you about mtself. I am economics student whose passion Is to teach and make concept more simpler as I can I also owned a YouTube channel by dev tutorial of economics where you can visit and give me your important feedback where I am missing.
                     

So, in this website I will upload the concept basically related with economics and we will also see the diifernt topic of different branch of economics.