The Importance Of Money

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Money has become without a doubt an important and inseparable tool that we use every day. For example, when we make our shopping we exchange goods for money or when we fuel our vehicles we pay with money in exchange for fuel. Without a money, individuals will have to go back to the barter exchange, which is buying one good in exchange with another good, in this type of exchange there should be double coincidence of wants. For example, a baker who needs rice should find a rice seller who wants bread. In this case there's a double coincidence of wants and the transaction will occur and there will be trade. However, if one party refuses because he prefers another good to trade with, then transaction will fail because there is no double coincidence…show more content…
Money guarantees that there's double coincidence of wants because (in our previous example) each seller when receiving money can buy any good he wants and desires. Therefore, money can be defined as anything or any commodity that is accepted as a method of payment as long as it carries out three important attributes. The first is that money serves as a unit of account. this means prices are measured in terms of money. For example, a 10.500 KD label on a shirt shows that money is a unit of account or an individual's stated salary of 1000 KD in a bank statement of account. The second attribute is that money serves as a medium of exchange. This means that money should be accepted as means of payment. When we buy any good (or service) we pay with money, and we are sure that the money will be accepted by all sellers. The third attribute is that money serves as a store of value. This means money can retain its value over time (or most of it). For example, you can save part of your money and spend it next month, next year or the year after. It will store all (or most) of its purchasing power, hence, it stores value. Note that inflation can affect the extent to which this value is…show more content…
In Kuwait's economy, fiat money helps to reach a healthy economy by creating a certain circulation of the major parties of the economy, where government receive money from taxes and investment & spend it back through education, health or military. On the same track, firms receive money by selling goods and services and spend it back on wages and research and development. At the same time individual receive money from wages and savings' interest rates and spend it back on good and services. Hence, fiat money allows transactions to take place, it creates interdependence within the economy. In other words, if someone does not spend other cannot receive. Fiat money has a great influence on producer's decision making, of where and how to produce, enabling them to purchase raw materials, combine them with production factors and make payments of them. It also helps producer to calculate costs, evaluating interest rates and making an appraisal of possible profit, while facilitating borrowing and lending. In the consumer field, it provide consumers with the purchasing power to enjoy goods and services, and enables them to design a budget that help to arrange all their expenditure in a way where they can achieve maximum satisfaction. Expansion of money in the market guarantees liquidity and safety of financial assets and hence encourage investment and saving. It also rise movability of financial resources by allowing
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