Money
Money:-
Money is something which facilitates the transaction of goods and
services.
Barter system of exchange:-
Barter system of exchange is the system in which commodities are
exchanged for commodities. This is also called commodity for
commodity exchange economy.
Difficulties of Barter System of Exchange:-
i. It requires double coincidence of wants which is a rare occurrence.
ii. It lacks a common unit of exchange.
iii. It lacks the system of future payments or deferred payments.
iv. It lacks the system of storage of value.
Definition of Money :-
Legal Definition :- Money is anything declared by law as money
Functional Definition :- Money is anything that acts as a medium of
exchange, measure of value, store of value and standard for deferred
payments.
Classification of Money: - It is classified on the basis of value of
money as money and value of money as commodity as following:-
1. Full bodied money.
2. Fiduciary Money
3. Credit Money.
4. Fiat Money
Functions of Money :-
1) functions of money is mainly classified as four, a medium, A
measure, A standard and a store,
A. Medium of exchange:- It means that money acts as an
intermediary
for the goods and services in an exchange transaction.
B. Measure of value or unit of value: - Money serves as a measure of
value in terms of unit of account. Unit of account means that the
value of each good or service is measured in the monetary unit.
C. Standard of differed payments:- Money is functioning as deferred
Payments because its price remains relatively stable.
D Store of value: - Storing of value means store of purchasing power.
It is convenient to store value in terms of money because storage of
money does not need much space
Indian Monetary System:- It is based on paper currency standard.
Currency is issued in India by RBI based on minimum reserve
system. Currency issued in India is inconvertible. The issuing
authority will not convert it into bullion – gold or silver.
Money Supply:-
The supply of money means the total stock of all the forms of money
(Paper money, Coins and Bank deposits). Which are held by the
public at any particular point of time. In India RBI uses four
alternative measures of money supply called as M1, M2, M3, M4.
Money
Very Short Answer type Question (1 Mark each)
Q1. Define Barter System.
Ans. The system in which goods are exchanged with goods are called
Barter system of exchange.
Q2. Define C.C. Economy.
Ans. An economy based on Barter system (i.e. exchange of commodity
for commodity) is called C.C. economy.
Q3. What do you mean by double coincidence of wants?
Ans. Simultaneous fulfilment of mutual wants by buyers and sellers is
known as double coincidence of wants.
Q4. What monetary system does India follow?
Ans. India is at present on the paper currency standard.
Q5. What is full bodied Money?
Ans. This is the form of money where the money value of money and
the
commodity value of money is the same for example gold coins.
Q6. What is credit money?
Ans. The money whose value as money is greater than the commodity
value with which it is made of.
Q7. Give example of near money.
Ans. Bonds, Equity, Shares, NSC etc.
Q8. What is Money?
Ans. Money can be defined as something that is generally accepted as
a
means of exchange and acts as a measures and as a store of the
value.
Q9. What is the main function of money in an economic system?
Ans. The main function of money in an economic system is that it
serves
as a medium of exchange.
Q10. What is meant by medium of exchange?
Ans. Medium of exchange means that money acts an intermediary for
the goods and services in an exchange transaction.
Q11. What is meant by measurement of value?
Ans. Measurement of value refers to monetary expression of the
market
value of goods & services.
Q12. What is money supply?
Ans. Money supply refers to the total quantity or stock of money
available in the economy at a point of time.
Short Answer type Question (3/4 marks)
Q1. What are drawbacks of barter system?
Ans. 1) Both sale and purchase should occur simultaneously implying
double coincidence of wants.
2) There is no common unit of exchange in a barter system,
accordingly exchange remains limited.
3) Barter system does not allow any convenient method of storage
of value
4) Division of goods in exchange may not be possible so some
wants may remain unsatisfied.
Long Answer type Question
Q1. How does Money help in removing drawback of Barter system.
OR
Q2. Describe importance of Money in Modern economy.
Ans.Q1. It helps in removing drawbacks of Baster system in the
following
Ways
A. Money as a unit of value
B. Money as measures of value.
C. Money as a standard of deferred payments
D. Money as a store of value
Ans.Q2. It facilitates exchange of goods and services and helps in
carrying
on trade smoothly
3. Money helps in maximizing consumer’s satisfaction and
producer’s profits.
4. Money promotes specialization which increases productivity and
efficiency.
5. It facilitates planning of both production and consumption.
6. Money can be utilized in reviving the economy from depression.
7. Money enables production to take place in advance of
consumption.
8. It is the institution of money which has proved a valuable social
instrument of promoting economic welfare.
