Concept of value of money

 MEANING

By the term '' Value of Money" we mean the purchasing power of Money or its buying capacity. It refers to number of goods and services which a unit of money can buy. The larger the amount of goods and services is bought by money, the greater will be the value of money. Thus we may conclude that there is a direct relationship between quantity of goods bought and value of money.


According to KEYNES, " Money, as such has no utility except what is derived from its exchange value, that is to say, from the utility of the things which it can buy."


STANDARD OF VALUE OF MONEY

(1) WHOLESALE STANDARD:- According to this standard, the value of money is expressed in terms of all those commodities which are traded in the wholesale market. This standard is preferred because the wholesale prices are recorded regularly and are easily available.


(2) RETAIL STANDARD:- Under this standard, the value of money is expressed in terms of retail prices, i.e. in terms of the prices of those goods and services which are ordinarily purchased by an average family for consumption purpose. The main problem in estimating this standard are:- (a) to ascertain goods and services to be purchased and (b) to ascertain the prices of those goods and services.


(3) LABOUR STANDARD:- According to this standard, the value of money is expressed in terms of labour. It is generally measured from the rate of wages payable to labour for a day's work. The main difficulty in using this standard is the fact that labour units are not homogeneous.

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