Money is defined as any commodity that is generally or universally accepted in payment for goods and services or settlement of debts. Another scholar explains money to be the means of valuation and of payment as both the unit of accounts and the generally acceptable medium of exchange .
Also Sir John hick defines money as what money does . Money could also be defined as anything that is generally acceptable as a medium of exchange and at the same time act as a measure and store of value.
While values of money could simply mean the quantity of goods and services that money can purchase at a particular time. Value of money refers to what money can buy which depends on the purchasing power of money . The greater the level of price, the lower the value of money and vice versa. The value of money is not constant. It changes from time to time.
For example, if a commodity cost $100 in 2020 and in 2021, it has jumped to $200, it means that the value of money has fallen. And if the value turns to $50 it means the value of money has increased.
The factors said to be influencing the value of money :
The general price level of goods and services: there is an inverse relationship between the price level and value of money, when price increases, the value of money falls because it can only buy few goods. And on the other hand, when prices reduced, the value of money increases, it means money can buy more goods.
Supply of money:- the quantity of money in circulation also influences the value of money. If there is too much money in circulation chasing fewer goods, the values of prices increases and ultimately money value reduces. On the other hand, if the money in circulation is few, then the price level is reduced and ultimately the value of money increases.
Volume of goods and services:- if there is increase in the volume of goods and services and the supply of money is constant, the value of money will increase, more goods and services can then be purchased.
The motives for holding money :
Transactional motive :- this motive arises when people wish to hold money to meet daily transactions. People desires money to meet their day to day transactions for example fuel, automobile expenses and foodstuffs. This motive is influenced by the level of income. Transactional motive emphasizes the role of money as a medium of exchange
Precautionary motive :- this is the desire on the part of the people or business to hold money so that they can take care of unforeseen circumstances that are also called unexpected events.
The precautionary motive for holding money exists primarily to take care of contingencies requiring sudden expenditure and emergencies e.g expenses on sickness and accidents.
This motive is influenced and determined by the level of income
Speculative motive :- this is the desire to hold money so that people can undertake financial investments at higher returns when the interest rate changes. It is the effect of expectations of changes on interest rates on the demand for money. Speculative motive laid emphasis on the role of money as a store of wealth. Money is demanded for the sake of investment. It is also referred to as liquidity preference for money.
The functions and motive for money could be seen as reason spending money becomes an habit and why people hold money .
One of the two main major reason for the basics of spending money is denoted from standard of living and cost of living of the individual:
Standard of living:- it measures the economic well being of the people in a country in a period. Standard of living is measured by the per capital income of the people. If the people can enjoy high quality of goods and services then standard of living is high.
This is the economic components of people’s welfare. On the other hand, if they cannot satisfy a wide range of wants then their standard is low . For example, America has higher standard than Nigeria because of higher per capital income and economic welfare.
Cost of living:- cost of living means the total amount of money an individual spends to obtain the goods and services which will sustain him at a particular time. It depends largely on the prices of goods and services.
If the price is high, the cost will be higher. This is the total cost of maintaining a given standard of living. On the other hand , if the price is low, cost will be low examples are cost for shelter, housing and food.
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