0Money and Banking
Class XII Macro Economics
Topic A
- Barter Exchange
Exchange of ‘goods for goods’ is called barter exchange
Example : If a person A sells wheat to person B in exchange for rice, there is only exchange of goods for goods which is know as Barter Exchange.
- Definition of Money.
Anything that is generally acceptable as a medium of exchange and at the same time act as a measure of value & store of value.
Meaning of Money Supply: Total money in circulation in an economy at a particular point of time. (1m)
- It includes money of public only
- It excludes money of Govt. and Central Bank
- It is a stock concept
Components of money supply ( 3m)
- Currency held by the public
- Currency notes are issued by the Reserve Bank of India (RBI) which is the monetary Authority in India.
- One rupee notes and coins are issued by the ministry of finance, govt. of India.
- Currency notes & coins are called fiat money.
- Currency notes & coins are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any Economic Transaction.
- (Net) Demand Deposits by Commercial Banks
- Demand deposits are the deposits which can be withdrawn from Banks on demand by writing cheques or through ATM / Debit card example current account deposits and saving account deposits.
- Only deposits of the public held by commercial banks are included in money supply.
- Inter-Bank Deposits (deposits which a commercial bank holds in other commercial banks) are not included in money supply.
Demand Deposits : Deposits made in a commercial Bank which can be withdrawn at any point of time by cheque/ATM/Debit card. They carry very less or no rate of Interest. Example Saving Bank Account or Current Account.
Time Deposits : Deposits made in a commercial bank which can be withdrawn only after a certain time period. They carry high Rate of Interest which varies with time period. They cannot be withdrawn by cheque/ATM/ Debit Card.
