Surplus money represents savings and wealth.
When you are earning more than you are spending, your bank account will start swelling. This surplus money in your account is actually your saving as well as your wealth. It actually denotes your capacity to purchase in future, and what you purchase using this surplus money actually decides as to what the advantages or drawback of this surplus money will be.
For a society, surplus money represents surplus value. In terms of elementary economics, it represents a situation where the producer is producing something that is valued by people far above its cost of production, and as a result the producer is having surplus money.
When you are earning more than you are spending, your bank account will start swelling. This surplus money in your account is actually your saving as well as your wealth. It actually denotes your capacity to purchase in future, and what you purchase using this surplus money actually decides as to what the advantages or drawback of this surplus money will be.
For a society, surplus money represents surplus value. In terms of elementary economics, it represents a situation where the producer is producing something that is valued by people far above its cost of production, and as a result the producer is having surplus money.
What can you do with the Surplus Money ?
Now, in either of the two cases, the surplus money can be invested in a new enterprise or for increasing the productivity which in turn can make the prices fall. However, in a monopolist market, the price is high and fewer people are willing to pay that price, so the scope of further investment is limited. Moreover, increasing the supply will actually bring down the profits, so the surplus money will not be used as investment. On the other hand, in a free market, this money can be used as investment to start new enterprises, thereby leading to economic growth. By having new products and improved technology, coupled with competition, prices of products will come down further and the cycle of growth will continue.
As can be seen in both examples, surplus money in the second case leads to benefits for the society and growth of economy, while in the case it leads to prevention of investment, stagnation of economy and inadequate social welfare.
As can be seen in both examples, surplus money in the second case leads to benefits for the society and growth of economy, while in the case it leads to prevention of investment, stagnation of economy and inadequate social welfare.
Advantages and Drawbacks of Surplus Money
The advantages are investment leading to economic growth and social welfare, more products and improvement in technology, provided there is a free market and investment is not restricted. If however, the market is not free, this advantage will not accrue to the society.The drawbacks can arise largely by use of the surplus money to consume excessively. When your kids have more money than they can spend, they are bound to indulge in wastages. Excess consumption means excess demand, which means rise in prices and inflation. So if there is excess money circulating in the society, inflation is bound to result. Sometimes certain Governments, who are spending more than their revenue, tend to print paper money to solve this problem. However, this excess money only worsens the problem and leads to "hyperinflation", a condition where inflation rises far above normal levels. Countries have experienced hyperinflation of many hundred percent per annum. In such conditions, people have no confidence in the economy, so the investors run away. As the economy collapses and people lose employment, the whole society suffers.