Money Flashcards
Limitations of barter system
- Lack of double coincidence of wants
Both the people should be willing to exchange commodities in order to get what they want.
The chances of both the people having wants equal to what the other person has is very rare.
For example: For both of them to be able to exchange the commodities, A must have what B wants and B must have what A wants. - Lack of common measure of value of goods and services.
Under barter system, all the commodities are not of the same value, a common measure of value of goods and services is needed which is not offered by the barter system. Hence under bater system , there is no specific measure of value which can be expressed in exchange ratios.
For example : if A has wheat and B has rice, then both of them should be willing to exchange these items. They will have to decide ,what amount of rice is required to for one kilogram of rice. - Lack of store of value
Exchange of items cannot store wealth. For storing of value one needs efforts and time. - Lack of deferred standard of payment:
Under barter systems ,no future and credit transactions can be made. So there is no deferred standard of payment.
Measures of money supply
M1= currency and coins +demand deposits +other deposits with RBI
M2= M1 + savings deposits with post savings banks
M3= M1 +net time deposits with banks
M4 = M3 + total deposit with post saving bank (excluding NSC)
What is money supply?
It refers to the total volume of money with the public or in circulation in the public at a particular point of time.
Types of currency
Fiat and fiduciary : Fiat money refers to the money under the control of law, government or under the Fiat and can used to settle any debts.
Fiduciary money refers to the money accepted as a medium of exchange by the payer and payee. Eg cheques
Full bodied money and credit money :
Full bodied money refers to the money whose commodity is equal to money value
Eg silver coin
Credit money refers to the money whose money value is more than the commodity. Eg 1 rupee coin
Components of money supply
Currency
Fiat money : refers to the money which is under the control of law, govt and Fiat and is used to settle any debts.
Legal tender money: it is also called legal tender money as it is legally accepted for settling debts and other obligations.
Demand deposits :
Net demand deposits : refers to the net basis demand deposits, these type of deposits are only included in money supply (in circulation in the economy)
Inter bank deposits are excluded
= savings +current account
Term deposits :
Not included in money supply as it does not belong to the public. Inter bank deposits are included. Inter bank deposits mean the money is deposited in a bank on behalf of the other bank.
What is money
Anything which is generally accepted as a medium of exchange, store of value, measure of value and mean for standard of deferred payment
Legal def of money and it’s types
Legal tender money
Limited legal tender money like coins of denomination not less than 1 and not more than 1000
Unlimited legal tender money
Non legal tender money / optional money like cheques
What is bank money? Is legal tender money or non legal?
Demand deposits
What is M3 known as ?
Agg monetary resources of the society
What is high powered money?
Produced by RBI
consists of currency and cash reserves
The only diff is cash reserves.
Money consists of currency and demand deposits.
High powered money also consists of currency so no diff there but has cash reserves which serves the actual base of the generation of the demand deposits.
What is barter system?
Exchange of goods for goods.
