How Inflation Affects the Functions of Money

Inflation mentions a continual basis of increase in the prices of products and services. Simply put, it indicates an increase in the level of the cost of living. Cash is anything that is appropriate by society for the exchange of goods and services. There are various functions of money such as: to function as a legal tender–Money is used to trade in items and services both internally and externally. In this method cash relieves the exchange of products within and between countries.

To serve as a store of worth, cash enables individuals to keep their wealth in financial terms. To serve as a system account in the sense of value, cash permits us to determine the worth of a commodity and in this way it assists in contrasts. It permit families and firms to make better choices as concerns to their purchasing choices. Lastly, it serves as a standard of differed payment–money allows individuals to make purchases now and pay later.

Thus this function of money encourages consumptions by various households. Inflation affects the function of money with higher prices, money loses its value thus can no longer act as a medium of exchange. The demand for money falls. With inflation people start losing confidence on the value of money, therefore money can no longer act as a means of deferred payment.

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